Deus Ex Macchiato

I am buried in final book proofs – when your title is listed on the publisher’s website with a publication date less than six weeks away, you know that it is urgent – but I wanted to at least point to an insightful old post of Chris Dillow’s. He discusses how the ideological environment in which policy is formulated affects its outcome.

the “neoliberal” turn in politics has two adverse effects:

1. If you believe markets know best and that centralized information-gathering is bound to be a deeply flawed process, then you’ll invest less effort in it, or be sceptical of the product of doing so. Cost-benefit analyses will then be founded upon flimsier evidence, or won’t carry much weight even if it is.
2. The increased belief in consumer sovereignty and decline in faith that “the man in Whitehall knows best” (to which “Nudge” economics is the counter-reaction) has devalued expertise. If politics is about giving voters what they want, you don’t need experts and evidence, but just pollsters and market researchers.

In these senses, “neoliberalism” has had some performative effects upon policy.

This is clearly right. There’s no such thing as an ‘objective’ cost benefit analysis, however hard you (or aren’t) trying to produce one. Politics can’t help but colour any policy making process — which is one of the reasons that it is so important.

Update. It occurs to me that there is a variant of the Sapir-Whorf hypothesis here: instead of `the structure of your languages affects your cognition’ we have `your politics affects which policies you can implement’.

Posted in: Cost Benefit Analysis, Economic Theory, Politics by David /
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Patrick Smith has a long, lovely post at Salon. He makes the point that few institutions, and certainly not the principal ones of US polity, are self-correcting:

[The system requires] the attention of those living in it. Otherwise it would all come to “disorder.” And this is among the things Americans are now faced with in a different way: Theirs is a system, a set of institutions, that yet less possesses the ability to correct its errors and injustices and malfunctions.

He urges an examination of the nuances of history, a willingness to look beyond the easy rhetoric of the American dream:

There is a richness and diversity to the American past that most of us have never registered… We are thus unaccustomed to a depth and diversity in our past that present us with a privilege, a benefit, and a duty all at once.

He even, doubtless controversially, suggests that Americans firstly accept their defeat, in some senses, and embrace it. This is not a simple matter though:

Defeat obliges a people to re-examine their understanding of themselves and their place in the world. This is precisely the task lying at America’s door, but on the basis of what should Americans take it up? … The answer lies clearly before us, for we live among the remains of a defeat of historical magnitude. We need only think carefully to understand it. We need to think of defeat in broader terms — psychological terms, ideological terms, historical terms. We need to think, quite simply, of who we have been — not just to ourselves but to others.

In other words, America has lost not in the sense that another has triumphed over it, but rather because it is not seen as it would be. The project to remake the world in pursuit of democracy has, at best, had variable success. But even where it was, stutteringly, successful, the helper was not applauded, nor emulated, nor often particularly welcome. America is powerful but, Smith says, it is not strong:

Strength derives from who one is — it is what one has made of oneself by way of vision, desire, and dedication. It has nothing to do with power as we customarily use this term. Paradoxically, it is a form of power greatly more powerful than the possession of power alone. Strength is a way of being, not a possession.

It is also, I would suggest, the capacity to remake yourself and your institutions, to change when needed. This is something that post-Reagan America has had trouble with. Perhaps precisely because it is so powerful, America is weakening. It cannot question itself: it remains polarised and unable to contemplate reform. Smith’s ambition is laudable; his analysis, vigorous. I hope that his prescriptions will be seriously considered, but I fear that they won’t be.

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Posted in: Photography, Politics by David /
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David Cameron has finally* written to the Crown Dependencies asking them to buck up their game on international tax. I don’t have high hopes. Many of these places have based their business models on secrecy, tax avoidance, and perhaps even the whiff of money laundering. Asking them to help the UK get its rightful tax revenue is roughly equivalent to asking them to hand back a substantial fraction of their GDP. We can achieve something here, of course, but it is going to take something more coercive than a letter to get it.

Let’s be optimistic, though, and say that Cameron, perhaps as part of a G-20 initiative, succeeds. So what?

Chris Dillow makes a fascinating, and provocative observation, observing that a new paper finds that, in Germany:

a 1 euro increase in [corporate] tax liabilities yields a 77 cent decrease in the wage bill.

In other words, companies just pass over three quarters of their new tax burden on to workers. Dillow then asks if taxing profits is infeasible, what policies would increase equality? One of his answers is radical:

Another possibility is … to abolish capitalism and profits. Granted, nationalizing companies so that the state can grab their profits might be like buying an airline to get free hot towels. But I suspect that worker-owned firms would provide a more stable tax base than profits do now. If workers owned firms, they could no more enrich themselves by shifting the burden of profit taxes onto workers than they could by moving their wallets from their left-hand pocket to the right-hand one.

Now, this really is left field, but I do like his thinking. Certainly the proposition that key service providers, like google, or vodafone, or the banks, should be in private hands is by no means proven. We could even nationalise them by issuing tracking stock that grants a share in their profits, like a share, but with no voting rights. What equity investors mostly want, after all, is a share of profits; companies routinely ignore their wishes anyway, so having the government in charge would not materially affect things. Indeed, you could simply change the legal nature of what a share is without having to buy anything: Marxism by corporate finance reform. It will never happen, of course, but that doesn’t stop it from being a good idea.

*I was far from the first to agitate about this, and my post was over four years ago.

Posted in: Politics, Taxation by David /
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One has to celebrate the creativity of the man. From a single paragraph description of the new Italian government on Beppe Grillo’s website we find ministers described variously as

• a talking mannequin
• the defrosted stock-fish
• the psycho dwarf
• the internationalist and frequenter of Bildeberg

And most cutting of all

• the nephew of his uncle, the one that Goldman Sachs loves the most

Would that we had a commentator his equal among our politicians.

Posted in: Politics by David /
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Matt Stoller has a fascinating article on Naked Capitalism, Why Ron Paul Challenges Liberals. Paul is a complex character, distasteful in many ways, but not without interest. As Stoller says

when considering questions about Ron Paul, you have to ask yourself whether you prefer a libertarian who will tell you upfront about his opposition to civil rights statutes, or authoritarian Democratic leaders who will … aggressively enforce a racist war on drugs and shield multi-trillion dollar transactions from public scrutiny… Ron Paul’s stance should be seen as a challenge to better create a coherent structural critique of the American political order. It’s quite obvious that there isn’t one coming from the left, otherwise the figure challenging the war on drugs and American empire wouldn’t be in the Republican primary as the libertarian candidate.

In other words, Stoller uses some of Paul’s policies as a tool to shame the US left; why don’t they have an alternative account of the role of US military power, for instance? Even if (like me) you don’t agree with all of Stoller’s position, he does make a good point there. Part of the problem of course is that the modern Democratic party is in no way a party of the left; arguably one wouldn’t expect such a critique to come from a centre right party, which is what they are under Obama.

It is the paucity of two party politics, then, that really comes out of this example. There’s no need for the Dems to be a party of the left; they just need to be left of the Republicans, and there is plenty of room there. The barrier to entry for new parties is so high that the Democrats are unlikely to face competition from the left: even the Greens, with long-established support, are not a serious challenge. This allows both Democratic and Republican parties to be corporatist and finance-friendly. It’s only the occasional maverick, like Paul, who evidences the narrow range of positions taken in American politics.

Posted in: Politics by David /
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I have read three things in recent days that make for a dispiriting insight into the state of Western democracy. First, Zoe Williams on the up-coming Eastleigh byelection:

There is one matter on which the people of Eastleigh are in complete unison – “this lot,” says [UKIP supporter] Talbot, “I just think they’re in it for themselves. They’re lining their pockets, and sod the rest of us.” Terri Smith, asked what she thought of Chris Huhne, said: “I hope he goes to jail. What was he even in parliament for anyway? He doesn’t need the money, he’s a millionaire many times over.”

“I don’t think a lot of any of them,” [voter] Bernard said sadly. “You never get the truth, they do something wrong, there’s a scandal, it fades away. If that were you or me, we’d be out.”

Next, a more articulate version of the same malaise from Charlie Stross:

Something has gone wrong with our political processes, on a global scale. But what? It’s obviously subtle — we haven’t been on the receiving end of a bunch of jack-booted fascists or their communist equivalents organizing putsches. But we’ve somehow slid into a developed-world global-scale quasi-police state, with drone strikes and extraordinary rendition and unquestioned but insane austerity policies being rammed down our throats, government services being outsourced, peaceful protesters being pepper-sprayed, tased, or even killed, police spying on political dissidents becoming normal, and so on. What’s happening?

Here’s a hypothesis: Representative democracy is what’s happening. Unfortunately, democracy is broken… our representative democratic institutions have been captured by meta-institutions that implement the iron law of oligarchy by systematically reducing the risk of change. They have done so by converging on a common set of policies that do not serve the public interest, but minimize the risk of the parties losing the corporate funding they require in order to achieve re-election.

Finally, a nuanced view, as you would expect from a professional political scientist in two different posts by Jonathan Hopkin:

Why risk annoying powerful people who can finance your reelection, when you could do nothing and blame someone else for the bad consequences of failing to deliver reforms? Postdemocracy, as Colin Crouch calls it. There will be no way out of the crisis without mobilizing social groups that have an interest in reform. The longer it takes for this to happen, the less likely it is that there will be peaceful outcome to this crisis.

[But] Democracy can’t be ‘consumed’, it’s made with our own engagement and involvement in the political process.

The problem, then, is clear. Professional politicians have (mostly) become disconnected from the popular will. This doesn’t matter for their electoral chances due to corporate funding, and because there is usually little alternative. The result is increasing distrust of the political process; but we only have ourselves to blame if we do not engage. This state of affairs cannot get worse forever so either some charismatic popular politician will capture the popular imagination and the other party(s) will have to follow them; or we will see some more damaging failure mode. I hope that it will be the former, but as Charlie and Jonathan say, there is a risk that it will be the latter.

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Robert Reich has a prescription for closing the $4T US budget deficit:

go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits… go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits… Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, and that’s another $1 trillion over ten years… Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there.

End the Bush tax cuts on incomes between $250,000 and $1 million, and — bingo — we made it: $4 trillion over 10 years.

He’s close, that’s for sure. I would add reform of the tax code to make aggressive avoidance and off-shore earning sheltering much harder (and I’d probably be less aggressive on research subsidies). Still the point is not the details: it is that the US can easily close the deficit by asking those who have benefited most from the last twenty years to pay the most.

Posted in: Politics, Taxation by David /
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First, and most important, congratulations to the folks to the West on their good judgement. Obama was unimpressive in his first term, but the alternative was plain scary. Maine and Maryland voted for gay marriage, Washington and Colorado for legal pot, and Elizabeth Warren was elected which should make for interesting Senate banking committee hearings. Good show.

Second, a report from the cutting edge of bad supervisory judgement. I went to a conference yesterday which started very well, but ended up about as scary as Romney’s economic policy. Why? Because a regulator from a minor European country (but who nevertheless is apparently influential at ESMA) suggested that it was official policy to substantially reduce the size of the OTC markets in general, and the inter-dealer market in particular. In other words, he didn’t toe the usual line of `we will do what is necessary for stability, and the markets will adapt as they may’ but intimated that some supervisors HAD THE EXPLICIT POLICY OBJECTIVE of reducing OTC derivatives trading. Now many have had that suspicion (and taken a variety of views on whether it was a good thing or not). But for a regulator to actually say that in public is outrageous — and it should be career ending. Do supervisors really want to take on the mantle of directing what instruments are traded, rather than saying what capital (& liquidity etc.) they should attract if they are traded? Do they want to take direct responsibility for the job losses at UBS, RBS and all the rest? Do they really claim to have such god-like understanding that they can impose massive change on the markets without bothering to conduct an impact study and without listening to serious, thoughtful objections from leading market participants? Because if they do, a number of people (myself included) will be noting those decisions and holding the supervisors responsible for their consequences. A politician can stand on a platform of financial reform and, if they win, they can do what they promised; Dodd/Frank thus has political legitimacy, whatever you think of it. But if unelected regulators formulate a policy that both goes far beyond what politicians have agreed and will have profound macro-economic consequences, something is very wrong.

Update. Thanks to FT alphaville, who picked this up, and Risk, who put the full story on line (albeit behind a firewall), the details have now come out. I wasn’t sure if this meeting was under the Chatham House rule so I wanted to err on the side of prudence, but now I don’t have to. My personal view is that the supervisor concerned was probably trying to provoke rather than articulating an honest appraisal of policy, but that hardly matters. Either he was mis-representing his central bank, which I would have thought was something that would be career threatening, or he was revealing where the CBI (and perhaps ESMA) really stand, in which case some serious questions need to be asked of the Governor.

Posted in: Politics, Regulation by David /
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I’m late to this, and out of the office today, so let me leave you with Chrystia Freeland’s fascinating New York Times opinion piece from a week ago, The Self-Destruction of the 1 Percent. Happy creeping Serrata.

Posted in: Economic Theory, Politics by David /
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I’ve been writing a complicated piece of code over the weekend. It needs to read an excel spreadsheet, so I started in Visual Basic, a choice I am now regretting. The problem isn’t easy, there’s quite a bit of data, and the algorithm is naturally expressed in a way that’s quite inefficient to implement without pointers*. So… it has been a headache. I have some results now, which seem likely to be right, and I’ll spend quite a bit of tomorrow trying various pathological cases. Still, I might have messed up and if I am really unlucky someone else will spot this.

All of this gives me profound sympathy for the civil servants who messed up the analysis on the West Coast main line franchise analysis. It’s really easy to make an error in a complex spreadsheet. For me, there are two main points here. The first is best put by Not the treasury view:

Ministers had months in the run up to the franchise award in August, and two months since, to require DFT [Department for Transport] senior management to explain to them – not with pages of numbers, but with convincing analysis – why this view, now apparently vindicated, was wrong. No remotely competent Minister would accept the explanation “That’s what the model says” on an issue like this. So either they didn’t ask the right questions, or they were incapable of understanding that they were getting the wrong answers. Neither interpretation reflects well.

I guess it would be too much to expect a minister to behave honourably during his opponent’s party conference and a week before his own.

The second and more important point is that this farrago would not have happened without privatisation. Privatisation doesn’t work not just because it provides returns to shareholders when things go well and little risk when things go badly – but also because it is impossible to write a contract that adequately ties down what it means to run a railway well for fifteen years, and to evaluate bids on that contract accurately. Sure, you can have a go at writing a model which helps you to understand, if you are lucky, what the bidders are proposing. But what you can’t do is think of every contingency. If you want to model a railway, run one: the real thing is the only reliable model. So why not close the evaluating contracts department at the DFT, renationalise the railways, and put the resources you freed up to work actually running the darn things? It would be simpler than what they are trying to do at the moment.

*Yes, I know you can fake it with classes. Or with the Win API. No, that doesn’t help much.

Posted in: PFI, Politics, Transport Policy by David /
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The Republican convention started with a whimper of bare-bones proceedings as Tropical Storm Isaac churned through the Gulf of Mexico, according to Reuters.

Now, far be it from me to call what is plainly an unrelated natural phenomenon ominous, but there is a history of storms preceeding – although obviously not portending – really nasty phenomena.

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Aditya Chakrabortty makes an interesting point in today’s Guardian:

After the drubbing in Atlanta in 1996, from which Steve Redgrave and Matthew Pinsent brought home Britain’s single gold, lottery money was pumped into elite sports… The result? Dramatic improvements at every Games since, with 29 golds scored at London this summer. Much of this is down to remarkable talent and gruelling training, for sure. But it is also one of the most significant public-sector successes in recent British history: £511m was spent in the run-up to these games, most of it from either the Lottery or the Exchequer…

I can think of lots of private companies less exacting with their cash than UK Sport. Its Investment Policy and Principles speak of a “no-compromise” approach and “a willingness to realign funding in the light of persistent under- or over-performance”. In other words, only potential medallists need apply – a philosophy that applies to whole sports, such as handball, as well as athletes… There is no denying that this policy – of picking winners and backing them – works.

There are lessons to be learned from our Olympics achievements. Britain’s economy is mired in a historic slump, which the government is making worse by cutting spending… Cabinet ministers bang on about growing our manufacturing base, and yet their solution is to spread a little bit of money very thinly. To do otherwise, they claim, would be to pick winners and we know how badly that ends. Really, there’s something wrong with picking winners? Tell that to Bradley Wiggins.

But of course while it is acceptable to the Tories to support sporting success, manufacturing or industrial winners are another matter entirely: they could not be more mistaken. Still, with the worst chancellor of the modern era, is it any wonder that we have yet again fallen into deficit?

Posted in: Economic Theory, Politics, Sport by David /
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In the aftermath of the G4S humiliating shambles, this question needs to be asked. It seems to me that there are at least three preconditions that have to be met before it makes sense for the government to pay a private company for a public service:

• They can say what they want. That is, it is possible to write a contract that define what the service is, and this is not likely to change. In most PFI contracts, this is not the case, as the deliverable changes too much: no company would agree to a sufficiently flexible contract, and no government should sign up to an inflexible one.
• The efficiency savings gained from a private provider are bigger than the cost of having to provide a profit to shareholders. As a letter in the Guardian today reminds us ‘When private companies deliver public services, ultimately they answer to thirsty shareholders, not the taxpayer. It’s inescapable: profit maximisation is a legal obligation for such companies.’ Given the estimated £300B cost of PFI, I think we can safely say that this criteria was not met in the majority of agreements signed so far.
• There is alignment of incentives. G4S had an incentive to hire cheap ‘security’ guards for the least time possible, and give them little training. The government had an incentive to have good security – and it faces enormous costs and embarrassment at not having it. As so often in outsourcing, if G4S had done a good job it would have reaped the rewards, but the risk of it doing a bad job mainly lies with the government. Heads I win, tails you lose is not a sound principle for public policy.

It is bizarre that there are few political voices setting out these concerns and demanding that outsourcing of public services provides clear value for money. As
Seumas Milne said yesterday after G4S, what’s needed is a political sea change.

Posted in: PFI, Politics by David /
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The Guardian has a fascinating if depressing exclusive on a new report from Democratic Audit. It notes that while there have been some positive trends – including stronger select committees; devolution; and enhanced disclosure of expenses and party donors – the overall trend is down.

Britain’s constitutional arrangements are “increasingly unstable” owing to changes such as devolution; public faith in democratic institutions “decaying”; a widening gap in the participation rates of different social classes of voters; and an “unprecedented” growth in corporate power, which the study’s authors warn “threatens to undermine some of the most basic principles of democratic decision-making”.

For me, party funding is the biggest of these. If we don’t fix this, parties can’t be democractic because they have to go where the money is or lose to their opponents (who will). This leads to disenfranchisement and a corrusive distrust of political institutions.

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Go Stephen King. From the Daily Beast:

I’ve known rich people, and why not, since I’m one of them? The majority would rather douse their dicks with lighter fluid, strike a match, and dance around singing “Disco Inferno” than pay one more cent in taxes to Uncle Sugar…

Mitt Romney has said, in effect, “I’m rich and I don’t apologize for it.” Nobody wants you to, Mitt. What some of us want—those who aren’t blinded by a lot of bullshit persiflage thrown up to mask the idea that rich folks want to keep their damn money—is for you to acknowledge that you couldn’t have made it in America without America. That you were fortunate enough to be born in a country where upward mobility is possible (a subject upon which Barack Obama can speak with the authority of experience), but where the channels making such upward mobility possible are being increasingly clogged. That it’s not fair to ask the middle class to assume a disproportionate amount of the tax burden. Not fair? It’s un-fucking-American is what it is. I don’t want you to apologize for being rich; I want you to acknowledge that in America, we all should have to pay our fair share.

Posted in: Politics, Taxation by David /
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An interesting initiative this, from the US. The HuffPo explains:

Both Houses of Congress are currently considering a bill which, in my humble estimation, would be wildly popular with the public — if they knew about it, that is. This is a truly non-partisan issue, one that pits every taxpayer in the country against the 535 members of Congress themselves — regardless of their party affiliation. The idea is a simple one, as evidenced by the bill’s official title: the “No Budget, No Pay Act.”

That’s it in a nutshell. The title is so good, it barely needs explaining. If Congress doesn’t pass a completed budget on time — both the budget blueprint and the 12 appropriations bills necessary — then when the new federal fiscal year dawns on the first of October, they stop getting paid. Their paychecks halt until the budget is complete, and they are not allowed to (later on, under the cover of night) award themselves retroactive pay for this period.

What is interesting about this – apart from the idea itself, which rocks – is that it pits the interests of all politicans (or very nearly all, at least) against those of the people. As such, it is very hard to get measures like these enacted. When you have cartel parties, though, such measures are necessary.

Update. It turns out that this comes from a rather interesting group, No Labels. Check them out.

Posted in: Politics, Rules by David /
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Steve Randy Waldman observes the problem:

The behavior of politicians, in Europe as in the United States, suggests that the people to which they are accountable are not primarily the fraction of their labor force that is out of work. This is different from the 1970s, when elected officials did seem to behave as though they were accountable to unemployed people, and put central bankers under intense pressure to be accommodative. Something has changed.

Jonathan Hopkin has the answer:

[parties became] ‘catch-all’ parties, no longer focused on mobilizing a core electorate, but instead diluting their ideological identities to attract voters from outside their traditional hunting grounds. In order to do this, parties became more centralized around their leaderships, whilst the membership – which constrained the leaders’ strategic room for manoeuvre – were neglected. Increasingly parties become professionalized, with the role of grassroots activists replaced by paid experts in media and communications…

Where mass parties [of the past] acted as links between civil society and the state… [these new cartel parties] have been entirely absorbed by the state, and correspondingly detached from civil society.

In other, plain words, they don’t work for you even – especially – if you are a party member. They work for the apparatus; and that, of course, means mostly those with the money, the media, and the lobbyists.

Posted in: Politics by David /
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Jonathan Hopkin has an excellent post discussing neoliberalism and why it isn’t a dead idea yet. The final paragraph is especially insightful:

The problem is that academic political economists know a lot more about the historical record than the average voter does, and there is no point in assuming that voters are going to come to the same judgement – they don’t have time to read Quiggin, Crouch and Krugman (alright, a few read Krugman). Voters never understood Keynesianism, so why would they understand neoliberalism? To achieve change, we need a mythical story about social democracy that sounds as good as the mythical free market – a vehicle for aspiration of a better life. If nobody has ever explained to voters how a better life doesn’t always come through a market, than we can’t expect neoliberalism to die the death it deserves.

Posted in: Markets, Politics by David /
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Radio 4 has rebroadcast Václav Havel’s Leaving. It’s a play nominally about the chancellor of an ex-soviet state, perhaps Havel’s own Czeck republic, who is leaving office. But about ten minutes in, Havel in uncomfortable self-parody has the Chancellor say something that could have been Tony Blair (or David Blunkett):

I have always placed great importance on human rights. In the name of freedom of expression, I imposed significant limits on censorship. And during my term fewer than half of all public demonstrations were broken up by the police.

There is a certain contemporary resonance too…

Posted in: Media and Popular Culture, Politics by David /
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