Stumbling and Mumbling

How Scotland should decide

Whatever the result of the Scotish referendum, almost half of all Scots will be disappointed, some very much so. Would there have been a better way of arranging things?

Possibly. I'm thinking of a demand-revealing referendum. The idea here is simple. Rather than simply put an X in the yes or no box, voters are asked to state the monetary value they would put upon independence; for nationalists this would be a positive amount, for unionists a negative one. And then, we look at whether any individual's vote was big enough to change the outcome, and levy upon him a tax equal to the net gains the other side would have had in the absence of his vote.

Take an example with three voters. Alec would vote £100 for independence, Bruce would vote £30 for no, and Charlie would vote £40 for no.

As £100 beats £40 + £30, independence wins. However, because Alec's vote is decisive, he must pay a tax of £70 - the net gains Bruce and Charlie would enjoy has Alec not voted.

The beauty of this system is that it forces people to express their true feelings. If you vote too big a sum you risk having to pay a big tax, whereas if you vote too little you risk not getting your way. 

This procedure is consistent with the greatest happiness of the greatest number. In our example, independence is a potential Pareto improvement, in that Alec could in principle compensate Bruce and Charlie and still be better off*. By contrast, simple majority voting allows the weak preferences of the many to outweigh the strong preferences of the few.

In this sense, utilitarians should prefer a demand-revealing referendum to a simple one.

I'd add two further benefits:

- Demand-revealing referenda would improve the quality of debate by forcing partisans to say how much they value indepdendence or the union. This would moderate the rhetoric on both sides and militate against some forms of self-deception - though it would of course be too optimistic to think demand-revealing referenda would eliminate all cognitive biases.

 - Demand-revealing referenda reduce bitterness. In my example, Bruce and Charlie can console themselves by knowing that if they had really wanted to save the union, they should have voted more. In this sense, losers have themselves to blame, not others. This should reduce the recriminations that follow the result. 

There's one objection to this scheme that I don't think is adequate - that you can't put a price upon feelings of nationhood. This fails because we already put prices onto lots of things: libel laws put a price upon reputation; the criminal injuries compensation authority prices injuries; and NICE even puts a price upon life. There shouldn't, therefore, be an objection in principle to pricing national sentiment.

Another objection is that demand-revealing referenda give power to the rich; the more money you have, the more you can afford to vote a big sum.

But it's not clear how decisive this objection is. Existing political arrangements also give the rich power, not only because they can make donations to parties and causes but also because the media defer to and publicize their opinions.

Insofar as this is a decisive objection, it is a case for reducing inequality rather than for rejecting more efficient forms of public choice.

And herein lies my point. One under-appreciated cost of inequality is that it might reduce the quality of public decision-making.  

* I say "in principle" because if they were to be directly compensated, they would have an incentive to overstate their opposition to independence in the hope of getting a bigger pay-cheque. This would remove a big benefit of demand-revealing referenda, namely that they encourage people to state their true preferences.

Uses of illiteracy

The level of financial literacy in the UK, says Atul Shah, is "shockingly low". I wonder to what extent this can, for practical purposes, be corrected.

What I mean is that there's a big difference between knowing something and acting on it. We all know that if you consume more calories than you burn up, you'll get fatter. But this doesn't prevent obesity. In the same way, mere brain-knowledge about financial literacy might not prevent people making bad financial decisions. There are (at least) four reasons for this:

 - Desperation. Even if you know that an APR of 4000% is a lousy deal, you might also know that your kids need new shoes. Guess which fact wins.

 - The media. If the business and finance sections of the papers were literate and honest, they'd say: "we don't know much about the future, so stick some of your money into equity tracker funds and get on with your life." They don't say this because they must sell adverts and wrap some text around those adverts - and high-cost actively-managed funds are more likely to advertise than trackers.  More generally, TV adverts - and even the programmes themselves - encourage us to spend more and get into debt.

 - Other pressures.When we feel low, we're apt to spend and borrow more. And we're also prone to spend more if our neighbours do so.

 - Cognitive biases. Even financially literate investors over-invest in expensive but poor-performing actively managed funds because of overconfidence or because an anchoring effect causes them to underestimate how horribly fees compound over time.

For these reasons, financial literacy itself is not enough. What matters is not just financial planning but character planning. Just as we keep our weight down by getting into habits of exercise and healthy eating, so we stay financially healthy by having the habit of spending less than we earn.

Which brings me to a problem. This would not be in the interests of capital.

The simple maths of profits tells us this. Companies - in aggregate - can cope with high wages if those wages are returned to them in the form of consumer spending. If, however, wages are saved they become a net cost and, ceteris paribus, a threat to profits. It's no accident that the crisis of profitability in the 1970s coincided with a high personal savings ratio.

So, not only is financial literacy difficult to operationalize, it is also bad for capitalism not just because it deprives some firms of mug punters, but because it is a systemic danger to profits. 

Preferences vs interests

Matthew Parris's piece in the Times has become notorious. However, he is raising an important point about political psychology which demands more attention than it gets.

He says:

I am not arguing that we should be careless of the needs of struggling people and places such as Clacton. But I am arguing  - if I am honest - that we should be careless of their opinions.

This poses the old question: should politicians serve people's preferences or interests?

Parris is following a long bipartisan tradition which answers: the latter. This is what Edmund Burke meant when he said that MPs should ignore the "hasty opinion" of their constituents, and it's what various leftists have had in mind when they've worried about false consciousness.

The distinction matters because research (pdf) in behavioural economics shows that people's preferences often don't promote their interests. To take a few examples:

 - Projection bias (pdf) means that we fail to foresee our future tastes. We fail to see that we'll adapt to some things (such as new consumer goods or to stock market losses) but not to others, such as commuting.

 - Hyperbolic discounting means that we might never get round to things that are good for us, such as starting a pension plan or going on a diet.

 - Adaptive preferences cause the poor and unjustly treated to reconcile themselves to their situation and so not demand their full entitlements.

 - Anchoring effects and just world illusion cause people to accept inequalities.

 - Low subjective well-being can cause people to make systematic errors such as borrowing and spending too much.  

- People often violate the most basic requirements of rational preferences, such as transitivity.

Given this evidence, Parris's position seems quite reasonable. I've argued for it myself in the context of immigration. And many critics of Parris would surely say we should ignore the preferences of (say) climate change deniers or homophobes. And surely every decent parent knows that we can advance sometimes interests by ignoring their preferences.

So, what's the problem?

Simple. History. In practice, ignoring people's preferences has often meant ignoring and violating even their most basic interests. Benevolent despots have been much more discussed than observed.

There is, however, a solution here. It's perfectly possible to have an institutional framework which protects interests whilst ignoring some preferences. Human rights exist precisely to ensure that our basic interests are protected - not least from others irrational or vicious preferences.

However, I suspect the disquiet about Parris's article is founded in the fear that these rights aren't extensive enough to ensure that the interests of "struggling people" are sufficiently protected.

There is a solution here - welfare rights. Just as a right to liberty protects us from the mob, so a right to welfare would protect the worst off from those who would go further than Parris in being heedless of them. The answer to many political problems is - a citizens' basic income.

Two conservatisms

Reading Shuggy's doubts about whether Scotland really is left-wing and James Forsyth's account of Tory divisions, I was struck by a common theme - one which also links with Douglas Carswell's defection to Ukip.

The theme here is a longstanding division within the Conservative party, which we might call that between the optimistic and pessimistic traditions.

The pessimistic traditon - which I associate with Oakeshott (pdf) - is wary of change, seeing it as deprivation, whilst sceptical of those offering political programmes, fearing that they over-estimate the powers of government rationality and under-estimate the law of unintended consequences. The optimistic tradition, on the other hand, believes that change - often in the direction of free markets - is both feasible and desirable.

This, for example, was the division between Thatcherites and "wets". Wets thought the best they could do was accommodate themselves to social democracy and achieve managed decline for the UK. Thatcherites thought free markets would unleash an economic renaissance.

It is also the division within the Tories over Europe. Optimists think we are better off out whilst pessimists see the EU as flawed but fear the disruption of leaving and so seek to tweak its imperfections.

The division isn't always so clear. I'd characterise the Cameron government as a mix of both. Its belief in free schools and expansionary fiscal contraction are optimistic, whilst the general lack of legislative optimism betokens pessimism. I'd even suggest that Thatcher was a mix of both: her reluctance to reform the NHS, for example, reflected a scepticism about the limits of what she could achieve.

This, I think, helps explain Carswell's defection. His political programme - direct democracy and much smaller government - puts him on the optimistic end of the spectrum. Small wonder that he felt unhappy with the (often) cautious pessimism of Cameron.

And this is where Scotland comes in. Shuggy writes:

[The SNP] have not enacted one single redistributive policy in the last seven years...Some sharper nationalists have been candid enough to acknowledge attitudes to the welfare state in Scotland are an indication of our conservatism as a nation, at least as much as our supposed socialism.  There's a whole bunch of people going to vote Yes because they want things to stay the same, not because they want change.

This reminds us of an important point. Scotland has not always been anti-Tory. Before the 1980s, it often voted heavily Conservative. This, I suspect, was because the Scots have long had a big tradition of gloomy melancholic scepticism which was comfortable with the pessimistic strand of Conservatism. Scotland turned anti-Tory - and nationalist - when that strand was overpowered by a Thatcherite and post-Thatcherite free market optimism.

You might wonder why I'm saying all this; why should I intrude into the private grief of Tory unionists?

Simple. I am sympathetic to the Oakeshottian pessimistic tradition, and fear that its eclipse is a costly one. The divisions within the Tory party, and the possible break-up of the UK, show that those costs are even more widespread than I'd imagined.

Interest rates & the 1%

Nick Rowe says some of the answers to Paul Krugman's question - why do some of the 1% want to raise interest rates? - are daft conspiracy theories. I'm in two minds here.

Let's start by sharpening Krugman's puzzle. Since the mid-80s, the income share of the 1% has risen at the same time as real interest rates have fallen. This tells us that low rates are compatible with the 1% doing well. And there are good reasons why this might be so. Easy money is good for asset prices, and low rates allow banks to borrow cheaply, to the benefit of senior bankers.

Hence the force of the question: why do some of the 1% want higher rates?

One big reason is an empirical claim - that a small rate rise now would nip inflation in the bud and so prevent bigger rises later. In this way, a rate rise now is consistent with low rates over the long-term. This "stitch in time" reason for a rate rise was expressed by Andrew Lilico of the shadow MPC, who favours (pdf) a rate rise as "a chosen small step to normalisation rather than the first forced step in a series of rapid rises."

In this sense, I sympathise with Nick. We don't need a conspiracy theory. Those who want higher rates are making a reasonable (though I think dubious) intellectual point.

However, there is a political undertow here. It's about the balance of risks. In particular, the 1% are more inflation-phobic and less unemployment-phobic than the rest of us.

I agree with Steve that the rich hate inflation not least because it creates uncertainty. (There's also the historical point that the inflationary 70s also saw the nadir of the fortunes of the 1%: this might be just coincidence, but why risk it?)

This alone creates a bias to tighten. What amplifies this bias is that the rich can tolerate mass unemployment. Nick's parallel with the 1930s is, I think, irrelevant. Back in the 30s, mass unemployment was a threat to the rich because workers could see a plausible alternative to the existing order in communism. Today, by contrast, there are no big feasible alternatives to capitalism and so unemployment is not a political danger - which means it is more tolerable.

This answers Peter's question: why has the Keynesian coalition vanished from modern politics? It's because it is no longer politically necessary. It was not Keynes who convinced capitalists of the need for full employment but Lenin.

That said, it's not necessarily in the interests of the rich to have really high unemployment, because this could weaken aggregate demand sufficiently to depress share prices and increase default risk. However, the extent to which this is the case depends upon whether growth is wage-led or profit-led: a low wage share might depress consumer spending and hence growth, but on the other hand, a high profit share might embolden capitalists to invest. Reasonable people can disagree on the extent to which this is the case and thus the extent to which unemployment is good for the 1%.

On balance, then, I sympathize with both sides. On the one hand, Nick's right to say the call for higher rates is the sort idea that people reasonably disagree about. But on the other hand, an understanding of economic policy surely requires us to ask: what is in the interests of the 1%?

The simplicity paradox

Simon wonders why simple theories of inflation are so attractive. For me, this raises a paradox.

There's a long tendency for people to be attracted to simple ideas. Many believe that there are easy solutions to tricky problems - be they independence, a smaller state, getting companies to pay fair taxes, whatever. (Yes, Marxism used to be among such ideas.) There's a name for this - the Casaubon delusion, the notion that there's a key to all mythologies.But, as several millions corpses in the 20th century warn us, such keys often don't exist. Foxes (pdf), who know many small things, do better than hedgehogs who know one big thing.

However, the opposite of a great truth is another great truth. In other contexts there are indeed simple solutions or near-solutions.Gerd Gigerenzer has shown (pdf) that simple rules of thumb are surprisingly effective, and evidence from many different contexts supports the claims of Robyn Dawes (pdf) and Paul Meehl (pdf), that simple models often out-perform expert judgment.

Take two examples of this.

One comes from stock-picking. There's good evidence that some strategies do beat the market on average over the long-run: momentum, defensives and quality. Such stocks can be identified not by judgment, but by simple stock screens.

Another comes from management. As Nick Bloom has shown, good management (pdf) often consists not so much in the exercise of judgment and discretion, but in the implementation of control and feedback rules; the work of Shann Turnbull is interesting in this context too. (This is not to say that implementation is necessarily a simple task).

However, there is popular resistance to the use of such simple methods. Very few stock-pickers rely solely upon simple screens* and our attitudes to management - especially among the political-media class - haven't progressed beyond "ju-ju man do magic."

So here's the paradox. We often believe in simplicity when we shouldn't, and don't believe in it when we should. John Stuart Mill said that liberty is often granted when it should be withheld and withheld when it should be granted. The same, perhaps, applies to simplicity.

* This might be reasonable for professional fund managers as such strategies carry benchmark risks, but retail investors have no such excuse.

Fighting the pro-capitalist state

Owen Jones has a brilliant description of how the state doles out welfare to the rich whilst bashing the poor. What should be the political response to this?

I fear that social democrats see this merely as a failing of personnel; if only we had politicians of enough courage and sense of justice, things would be different. In fact, this is nowhere near enough. There are powerful structural reasons for the pattern Owen describes - for why, in Marx's words, the state is "a committee for managing the common affairs of the whole bourgeoisie." I'm not thinking here merely of the fact that capitalists make political donations and offer well-paid jobs to superannuated politicians and expect their money's worth from doing so. There are two other mechanisms.

One is that governments need economic growth, which makes them dependent upon capitalists. Michal Kalecki put this well:

Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence.  If this deteriorates, private investment declines, which results in a fall of output and employment...This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis.

This explains why the government gave big handouts to the banks. In 2008 bankers could credibly claim that without those handouts, the economy would have collapsed.

Broadening the point slightly, it also explains the spread of outsourcing. In a world of secular stagnation, profits can't grow much through ordinary investment and technical change, as both are weak. Instead, profits must grow by expanding the domain in which profits can emerge - hence the corporatizing of state functions.

Secondly, politicians believe that the private sector has management expertise. Outsourcing happens because ministers think that the private sector can manage some functions better than government. And the banks were left unreformed because the government thought bankers' expertise was necessary to restore the banks to profitability.

A reversal of the trends which Owen decries requires a weakening of these two mechanisms. Is this possible?

I suspect the second mechanism is the more vulnerable one. The left can and should devote far more effort to attacking the myth that private sector managers have expertise. This would consist of:

 - Pointing out that the claim to such expertise is very often merely an ideological front for theft.

 - Emphasising the distinction between markets and capitalism. Insofar as the private sector does increase efficiency, it is to a large extent because market forces drive out (pdf) inefficient producers, and not because good management raises the performance of existing ones.The fact that outsourcing firms are often incompetent  fraudsters shows how hard it is to raise efficiency in honest ways.

 - Granted, there is sometimes such a thing as good management. But it consists (pdf) in ensuring good control and feedback structures are in place. It does not mean mindless wibble about leadership, strategy and vision.

 - Where some people have the skill to build such structures, their expertise should be under democratic control. The expertise of scientists and economists is subordinate to the political process. The expertise of managers should be no different.

Saying all this, though, merely runs into a problem. The state is actually shifting in the exactly opposite direction. It is embracing a top-down cult of management which is the enemy of creativity and professionalism.

Marx thought that the pro-capitalist state could only wither away after a socialist revolution. I fear he was right - and that such a revolution is a distant prospect.

False democracy

At the gym yesterday morning, I caught sight of a TV show discussing "is fracking the future?" Who might usefully discuss this question: geologists? energy economists? Nope. There was the ubiquitous vested interest; Vivienne Westwood, a frock designer; and James Delingpole, whose field of expertise has yet to be discerned.

What's going on here is yet another example of the Robbie Savageization of the media. What matters is not knowledge, intellect or wisdom but the narcisstic assertion of mere opinion. And "good" TV (or radio) consistents not in enlightenment but in the loud and heated exchange of that opinion. We see this in Question Time, radio phone-ins and the speak your branes sections in newspaper websites.

There's a paradox here. This might seem a democratic development; everyone's opinion is equal, regardless of their knowledge. And yet at the same time as the media has become more "democratized" in this sense, the power of elites has strengthened.  

One reason for this, I suspect, is that the downgrading of expert opinion can serve a reactionary function. Since at least the time of Galileo, scientific knowledge has tended to undermine those in power. Historically, this has been true of economics too. David Ricardo was a radical MP; Alfred Marshall, one of the founders of neoclassical economics, had socialist sympathies; the "dismal science" got its name by opposing slavery; and the efficient market hypothesis tells us that millionaire fund managers are mostly thieves and parasites.

However, a world in which experts are ignored, because "it's a matter of opinion, innit" is one which helps silence these challenges. The sidelining of genuine expert knowledge on fiscal policy and immigration has contributed to falling real wages and racism.

You might think this isn't wholly unreasonable, because experts - not just in economics (pdf)  - are often wrong. But there might be a negative correlation between being right and having influence. As Alan Blinder famously said, "Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least."

There is, though, something else going on. Giving voice to mere opinion does not mean redistributing power. Most workplaces - including in the public sector - are fiercely top-down and anti-democratic even though employees might be local experts with genuinely useful knowledge.

What have then, is not real democracy but the mere appearance of it, in which the opinion of the mob serves to disguise the fact that power is held by a small elite.

Emergence

The Social Mobility and Child Poverty Commission this week reminded us of an old fact - that privately educated people are disproportionately represented among top jobs. Why is this?

It's not solely because prviate schools give people a better chance of going on to get good degrees. This paper shows that, even controlling for university, the privately educated have a slight advantage in their chances of getting top jobs. And this one shows that, controlling for degree, there's an earnings premium for the privately-schooled. This is consistent with anecdotal evidence. Sajid Javid's experience of getting job offers from foreign but not British banks, I suspect, chimes with the experience of many of us from the wrong side of the tracks.

Equally, though, I'm not sure it is solely due to outright overt class discrimination. Call me naive, but I doubt that Alan Rusbridger - to take one example of someone who employs lots of folk from expensive schools - wants to grind the faces of the poor or faints at the thought of proximityto ghastly oiks.

Instead, I suspect that what's going on is an unintentional form of discrimination. The privately educated give off more competence cues; they are more likely to fit in; and because they seem familiar, they are less of a risk to prospective employers.

What we have here, then, is an example of emergence.Discrimination against oiks can occur as the unintended outcome of reasonable behaviour. Social phenomena are not simply individual behaviour writ large. As Alan Kirman said in his important book, Complexity Economics, "Aggregate behaviour does not always have a counterpart in the microeconomic data.  

Although complexity and emergence seem like new ideas they are in fact at least as old as modern economics. When Adam Smith wrote that "it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest" he was expressing the idea of emergence; benign social outcomes can result from nasty motives.

Now, sometimes, emergence is a good thing - as in Smith's invisible hand or in this example of how stupid traders can generate rational markets. But there are other cases where it's not so benign, for example:

 - The idea of rational bubbles shows that intelligent traders can generate irrational markets.

 - Patriarchy is, in part, an emergent process - it arises not just because men are consciously sexist, but because of socio-psychological mechanisms.

 - Markets and institutions can select for idiots and against the competent, resulting in an anti-meritocracy even though few people really intend this to happen.

 - As Marx pointed out, markets might seem like a realm of freedom and equality, but in fact they are places in which the worker is "bringing his own hide to market and has nothing to expect but — a hiding."

Only a silly fanatic would regard emergence as always benign or always nasty. How it works varies from context to context according to quite subtle conditions. My point is simply that combatting inequality might take more than simply changing attitudes.

Herein, though, lies a link with that other big story of the week, the Rotherham child sex exploitation affair. One response to this has been to demand Shaun Wright's resignation as PCC. However, social problems occur not (just) because we have weak or corrupt individuals in positions of power but because of complex social forces. The notion that these can be tamed by the right people represents an unthinking rejection of the notion of emergence.

UK vs US living standards

Fraser Nelson's claim that the UK is poorer than any US state other than Mississippi has met with some scepticism on Twitter. However, I reckon he might be right.

Put it this way. Last year, UK GDP was £1612bn in current prices. With a population of 64.1m this gives us GDP per head of £25161. With the exchange rate averaging $1.57 last year, we have GDP per head in dollars of $39503. US GDP (pdf) was $16768.1bn spread over 316.3m, giving GDP per head of $53013. These are close to Fraser's numbers.

One reason for this difference is simply that Americans work more; the OECD estimates that the British work an average of 1669 hours per year whilst  Americans put in 1788.

If we look only at wages, though, things look very similar in the UK and US. The ONS estimates that the median full-time male wage was £556 per week in 2012, whereas the BLS estimates that the median full-time male worker in the US got $860. At an exchange rate of $1.57, these are very close. This is quite consistent with US GDP being higher, though, to the extent that non-wage incomes such as profits and the self-employed are greater, and to the extent that US earnings are higher because of higher wages at the very top.

But what about the cost of living? In many respects, this is lower in the US, which means that whilst the typical wage-earner brings in roughly the same in the UK as in the US, his money goes further in the States.

Housing costs for sure are lower. The median house in the US costs $222,900 or £134277 at today's exchange rate, whereas Lloyds Banking estimates the average UK house to cost £186322 (pdf) (yes, there's a difference between average and median, but I doubt this explains all the gap).To be more precise, you could get a four-bed house with five acres in Little Rock, Arkansas for the price of a one-bed flat in Hackney.

Many consumer prices are lower in the US than UK. If we compare table P4 of the BLS's CPI release (pdf) to table 62 of the ONS's CPI report, we find:

 - 12 eggs cost £3.09 in the UK but $1.95 (£1.17) in the US.

 - A gallon of milk costs £3.68 in the UK but £2.34 in the US

 - 1kg of beef mince costs £7.96 in the UK but £5.15 in the US.

 - 100g of coffee costs £2.78 in the UK but 67p in the US.

A comparison of prices at Amazon.com and Amazon.co.uk reveals a similar pattern. For example, a 160GB iPod costs $259 in the US (£156) but £175 in the UK. And a quick glance suggests car prices are also lower in the US. The US isn't the home of the free, but it is the home of the cheap.

Not all comparisons are so favourable for the US - there's the not inconsiderable matter of health insurance, for one thing, and Harvard's a darned sight more expensive than Oxford.

And of course, the cost of living is only part of what makes a place desirable to live in: some of us think it a good thing that the UK's police forces don't model themselves on the Islamic State, for example.

Nevethless, the point is that Fraser's claim isn't outrageous, as it is consistent with other data.

Constraints, real & imagined

Simon's post reminds me of Sidney Webb's reaction to Britain leaving the gold standard in 1931: "nobody told us we could do that."

The 1929-31 Labour government tore itself apart because it thought the gold standard was a binding constraint which demanded fiscal austerity. But in fact, the constraint was imaginary. Abandoning the gold standard had no great ill-effects.

European social democrats are in the same position Webb was. They are seeing binding constraints when in fact there are only illusory ones. In the euro area, a relaxation of the stability and growth pact to permit fiscal expansion would probably have the same benign consequences as Britain's leaving the gold standard. And in the UK, Ed Miliband's claim that "we won’t have the money" after the next election is illiterate drivel; he's imagining a constraint where none really exists.

This question broadens way beyond fiscal policy. Hopi says that "the constraints on the next government will be so tight". But which of these are genuine, and which imaginary?

To some extent, it's a matter of degree. For example, a living wage of £50 an hour is obviously infeasible, but one of (say) £8 isn't. And a top tax rate of 100% is infeasible, but one of (say) 50% might not be. (Note: feasible isn't the same as desirable.)

In another respect, the issue here is the old one of the role of MPs. If you think politicians should enact voter preferences, then you'll regard their demands for (say) immigration controls as a binding constraint. But if you take the Burkean view that politicians should serve interests rather than preferences, you won't.

It's a cliche on the left that we need a debate about something. But here the cliche is true. We should ask which of the many alleged constraints on a future social democratic government are real and which imaginary. Richard Murphy complains that politicians "choose to shackle themselves to the interests of the corporation and so voluntarily curtail their capacity to act." To what extent is he right?

My personal suspicion is that Labour is not constrained much by the fiscal position, nor by the power of the media, but it is tightly constrained in its ability to raise long-term growth. I suspect that some shadow cabinet members believe the exact opposite.

Herein, though, lies a problem and two paradoxes.

The problem - and first paradox - is that a debate about constraints is unlikely because of a constraint imposed by the Overton window and the traditions of politcal discourse. In recent years, politicians have tried - often successfully - to close off debate. Be it Thatcher's claim that "there is no alternative" or Blair's appeals to modernity, some of the most successful political rhetoric of our time has been the pretence that constraints rule out all policy options bar one. To debate whether constraints are real or imaginary requires a break with this managerialist mindset.

Which brings me to the second paradox. We Marxists are somtimes accused of believing in historical determinism. And yet on this point the opposite is the case. It is a Marxist who is inviting you to believe that politicians might have room to manoeuvre whilst it is rightist social democrats who seem to be the determinists who deny that freedom. 

Public vs private racism

Which is better - to be a racist in words but not actions, or in actions but not words?* This is one question posed by the Malky Mackay affair.

To see my point, let's juxtapose him (and football generally) with the film and TV business. Many black actors have felt the need to leave the UK to pursue their careers for want of good jobs here. But this is not the case for black footballers. I suspect that 20-something black men get a better deal relative to their white peers in football than they do in other walks of life** (though this might be a low bar), and - so far - there is no suggestion that Mackay's team selections or other actions were racist.

Which brings me to the paradox. Whereas Mackay is being kept out of work because of his racist words even though no black person is claiming that he victimized them, no individual in the arts is being accused of racism even though many black actors feel that they are victims of racism.

There are two things going on here.

One is that intentions are mediated by institutions. In football there is cut-throat competition and as Gary Becker famously said this compels managers to act non-racist regardless of their private beliefs***. Exhibit A here is Ron Atkinson. By contrast, the British film and TV industry is less competitive, and this provides room for nepotism, tradition or subtle forms of racism to exclude blacks. Racism or non-racism can be an emergent process; both can exist, independently of the motives of individuals. As Bernard Mandeville pointed out in 1732 in a different context, private vices can coexist with public benefits and vice versa. 

The other is that a nice guy image can be used to deflect attention away from misdeeds. As Machiavelli said,"it is unnecessary for a prince to have all the good qualities I have enumerated, but it is very necessary to appear to have them." Just as Jimmy Savile used his charity work as a front for serial sex abuse, and Bernie Madoff presented a trustworthy image to disguise his fraud, so images of liberalism and non-racism can hide racist actions; endless anti-racism statements and initiatives, for example, have not eliminated racism in the police. And not just racism, of course. We all know men who pretend to be feminists and yet treat women abominably.

Herein lies my concern about the Mackay affair. Punishing men for sexist and racist words, in the absence of any actions, might amount to hurting not the most racist and sexist men but rather those with the least self-control and who get on the wrong side of vindictive billionaires. And it might wrongly exonerate those who succeed in hiding their racism and sexism behind a front of hypocrisy.

* It should go without saying that it's better still to be neither, but this option isn't always available.

** There are no black managers in the league, but that's a story about club owners not about Mackay. And of course we should not suggest that billionaires are guilty of wrong-doing.  

*** I'm not saying here that competition completely precludes injustice; there might still be space for some racist and homophobic actions.

Olivier Giroud & social change

Watching The Arsenal last night reminded me of a saying by Niels Bohr and Jon Elster - that the opposite of a great truth is sometimes another great truth.

What I mean is that some Gooners have long been critical of Olivier Giroud and have called for the signing of a big-name striker. But what sort of things could a top-class striker do? Pull back a two-goal deficit against a top team away from home, that's what...which is exactly what Giroud did. Had a new £50m signing turned the game as he did, everyone would be saying today what a fantastic signing he was.

To some degree, Giroud is a victim of the phenomenon described in those old sayings, familiarity breeds contempt and the grass is greener. Sometimes, we undervalue what is known and familiar to us, and overvalue what we don't have. As Joni Mitchell said, you don't what you've got till it's gone.

Gooners are of course not unusual in this regard. Last Christmas, when West Ham were in the relegation zone, some Irons wanted Sam Allardyce sacked. But then it was pointed out that the sort of manager West Ham needed was just the sort that Mr Allardyce was. He stayed, and the Hammers have since improved.

The grass is greener/familiarity breeds contempt effects help explain why fans often want their manager sacked (though of course sometimes the calls are rational), and why we get so excited on transfer deadline day - because the players we are about to sign are more thrilling than the ones we actually have. They also explain why men cheat on their wives, somtimes with unhappy effects (as Olivier himself knows).

So far, so obvious. But here's where Bohr and Elster's saying comes in. The opposite phenomenon also exists. Sometimes, we overvalue things simply by virtue of owning them; the endowment effect has been established in laboratory experiments (pdf). This helps explain a range of behaviour such as why housing transactions tend to slump when prices fall (because homeowners overvalue their houses and so set too high a reservation price) or why people tolerate inequality - it's (partly) because they over-rate the merits of existing inequality.

What we have here, then, is something that is quite common in the social sciences. We have two opposing mechanisms, which poses the question: in what circumstances will one mechanism be more powerful than its opposite?

Often, this question can only be answered in hindsight: as Elster stressed, prediction and explanation are two different things.  

There is, though, (at least) one circumstance relevant to our case - aspirations. Demands for social change tend to be greatest not so much when people are abjectly poor and oppressed, but rather when their aspirations are higher than their objective conditions. It is then that the grass is greener effect outweighs the endowment effect. This helps explain discontent with Giroud. It those Gooners who expect Arsenal to win the league who are most unhappy with him, whilst those with lower expectations see his merits.

I've said it before, and I'll keep saying it: football can illuminate important issues in the social sciences.

Politicians' biases

All professions - yes, even economists - tend to have a biased perspective on the world; the French call this deformation professionnelle. Reading Theresa May's proposals to combat Muslim "radicalization" reminded me that politicians are prone to such biases too.

I say this because they are selected to have certain dispositions. It costs time and money to enter politics, and success does not necessarily go to the most meritorious. This means that politicians, even more than others, will tend to be over-optimistic. Also, you tend to enter politics if you think policy can make a difference. This tends (there are exceptions) to select against those with an Oakeshottian conservative disposition, who believe that bounded rationality plus the innate imperfections of human nature mean that some social evils cannot be eradicated.

There's a third selection effect. Politicians are selected for their emphasis upon rhetoric and persuasion. Many would-be pols were active in the Oxford Union. But if you emphasize some things, you naturally de-emphasize others. And one of these other things might be the dull grunt work of day-to-day policy implementation; the soaring rhetoric of Winston Churchill excites more admiration among politicians than the quiet administrative ability of Stafford Cripps or Norman Fowler.

This is where Ms May comes in. These raise some obvious questions: do we really want to keep potential terrorists in the UK where they can cause trouble here rather than let them kill themselves in Syria? If the security services devote resources to people plotting terrorism overseas mightn't they be distracted from those plotting terrorism here? Might a clampdown on "radicalism" reinforce some Muslims' perceptions that the west is at war with Islam and so encourage some hotheads into terrorism? Wouldn't such actions suggest to some that the "western value" of free speech is mere hypocrisy, thus further antagonizing some Muslims? (Nelson Jones has likened May's proposals to the Six Acts).

Now, like pretty much everyone else who bloviates upon these issues, I don't know how strong these objections are. But I do know that revenge effects are common in the social sciences. And I fear that politicians might be underweighting them because of their deformation professionnelle.

I stress that I'm not making a partisan point here. One thing for which this goverment deserves more credit than it gets is a lack of the legislative hyper-activism of the New Labour years. And Npower's claim that it hasn't cut gas prices for fear of a price freeze under a Labour government is - if true - an example of how Labour has under-estimated the power of revenge effects.

However, it's not just politicians who should be blamed here. So too should be voters (and the media). The tendency to regard politics in the spirit of partisans cheering for one side or another distracts us from some fundamental questions, such as: what can politicions actually achieve?

Women MPs & the nature of politics

Whilst I was away, I got a reminder of how I am out of step with modern politics.

Austin Mitchell complained about the feminization of parliament. This, he says, will lead to politics becoming "more preoccupied with the local rather than the international...and small problems rather than big ideas and issues." The reaction to this, gathered by Ben Cobley, has been hostile.

There is some important and interesting evidence on this point. It's this paper by Dinuk Jayasuriya and Paul Burke. They show that:

Over recent decades, higher representation of females in parliament has led to faster economic growth.

Now, "led to" does not mean "cause." It could be that this correlation exists because of an omitted variable; perhaps gender equality generally promotes growth - for example by encouraging women's education (pdf) - and more female MPs are merely a symptom of this equality.

However, this might not be the whole story. Perhaps preoccupations with local issues help promote economic growth - say, by ensuring better childcare (pdf) - in a way that bloviating about big ideas does not.   

However you interpret their finding, it suggests that, at worst, a feminization of parliament would not have adverse material effects and at best it would benefit everyone (except for a few would-be male MPs).

However, as far as I can tell, nobody has cited the Burke and Jayasuriya paper. In one sense, I find this depressing. This omission corroborates my fear that politics has become a post-serious wrestling match in which scientific evidence is ignored in favour of narcissistic cheering and booing.

In another sense, though, I wonder whether it might be me that's wrong. In hoping for a dispassionate scientific debate, mightn't I be guilty of the mistake of which I accused Richard Dawkins - namely, assuming that emotion-free politics is both possible and desireable?

I'm not sure which it is. Either way, I'm out of touch.