Monthly Archives: June 2015

Unexpected Item in the Nagging Area

One of the fairly recent retailing innovations is the introduction of the self-service checkout. Like many such innovations, it has the effect of being both efficient and dehumanizing at the same time. The speed benefits to customers and the cost benefits to retailers are both obvious, so I will dwell no further on these. So, why dehumanizing?

The first and most obvious answer is that it reduces an opportunity for two human beings to connect with each other, albeit in the rather banal circumstances of buying a few groceries. But my main complaint is about the irritating recorded announcements with which shoppers are bombarded. The source of my irritation is the mock-cheerful, sing-song tone which is always adopted, quite unlike the cadences of normal speech. A Monty Python sketch about TV announcers summed it up: “Now, remember your BBC announcer training: deep breath, and try not to think about what you’re saying”. (Commercial radio advertising is an extreme example of this genre, inhabited by people from a parallel universe whose lives are so crushingly boring that they get breathlessly excited by some mundane product or service.)

I would much prefer to listen to a machine which sounded more like Basil Fawlty, which nagged you in increasingly insulting terms if you were too slow or made a mistake.

But even the more naturalistic tones of a Basil Fawlty talking machine would pall after a while. What’s really needed is a mute button, to enable experienced users – which are most of us – to switch off the voice. (I recognize, of course, the value of announcements for inexperienced users, or people with various forms of disability such as visual impairment.)

But, in recognition of the frustration caused by the constant repetition of the same phrases in the same tone, the supermarket which will get my custom would be one where the mute button looks like this:

Big Red ButtonGoodbye, and thank you for browsing at Human Eyes!

 

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Death of the Northern Powerhouse

With news of the cancellation, only 6 weeks after the election, of major rail improvements to support the creation of a “Northern Powerhouse”, here’s a tale of when the last one was killed off by the first wave of free market fundamentalism.

In the summer of 1980, my boss thought it would be a good idea for me to attend the Oxford University Business Summer School. This was a course aimed at aspiring managers and was essentially the economics part of the first year PPE (politics, philosophy and economics) undergraduate course, crammed into three weeks of study. My fellow students came from medium to large employers across the country, in a variety of different sectors of the economy.

1980 saw the first of the home-grown and entirely unnecessary economic slumps, this one brought on by Thatcher’s great experiment called monetarism, at that time part of the new religion of Free Market Fundamentalism. (See my earlier post, Jam tomorrow on the M3, for more on my views of monetarism.) The recession was hitting manufacturing and the north of England particularly hard. Some of my co-learners worked in such industries.

We had many after-dinner speakers from the upper echelons of politics, academia, business and trade unions (yes, they were still listened to then). One speaker I particularly remember was one of the first of the new breed of City traders. His talk started by gently ridiculing the Old City Gentleman (seen on the left below), with his old-school tie code of ethics: “my word is my bond”, etc. He compared this unfavourably with the shiny, thrusting new City type (such as himself), who would sweep away the old ways. (The City “Big Bang” of deregulation was still a couple of years away.)

In the picture he painted, the new City was one enormous game of monopoly (playing with other people’s money), huge fun and with lots of money to be made. He all but invited his audience to abandon their own careers and follow the path he’d chosen.

Old and New City gents
City Gents – old and new

During the question and answer session which followed, the discussion got quite heated. I distinctly remember two fellow students from northern industries: they were solid, respectable and, in all probability, “natural” Conservative voters. In the debate, they got very angry indeed, forcefully pointing out the enormous problems government policies were causing their industries, especially for exports.

There was absolutely no meeting of minds: they were living in different worlds.

I don’t know to this day whether my fellow students prospered or even if their companies survived. Nor, indeed, how many millions our city friend went on to make. But I did see at first hand the very personal pressures that were only just beginning as a result of the irresistible rise of the City and the destruction of our former northern industries.

Osborne was, until yesterday, speaking of a great revival of a northern powerhouse. It would have been a great deal simpler if his predecessors hadn’t destroyed the one we had in the first place.

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Everybody Knows

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes…

So sang Leonard Cohen in 1988.

Labour lost the 2015 election in 2010-11 when they failed to nail the twin lies that:

  • The economy was in dire straits, as bad as Greece
  • It was all Labour’s fault.

See my verdict on these issues here.

The groans at the televised leaders’ debate on 30th April, followed by Ed Miliband being called a “liar”, said it all. Polls had shown that, by 2012, over 60% of the population believed these lies. The intervention in December 2014 into the debate by Mervyn King, Governor of the Bank of England at the time of the 2008 crash, made no difference.

Matters got worse when the following acts of “economy with the truth” went by without serious challenge:

  • “Benefit scroungers” were to blame. The figure quoted repeatedly, over two years, was £5 billion of “fraud and error” – note the order of those words – in the benefits system. This failed to point out that only 20% of this was fraud, representing just 0.7% of the benefits bill. It’s doubtful that attempts to drive this down further would be cost effective and would run the risk of penalising basically honest people who sometimes make mistakes.
  • Immigrants were to blame. Even the Economist, not known for its left-wing sympathies, refuted this in quoting a late 2014 piece of research which, like all previous such research, shows that immigrants continue to benefit the economy as a whole.
  • The EU was to blame. Numbers galore get bandied around in the debate, usually by someone (often, but not always, from UKIP) who has found some numbers purportedly showing the direct “cost” of EU membership. Occasionally, a pro-membership voice quotes some numbers about jobs lost if we quit. With the scope for selecting only those “facts” (which are sometimes just oft-repeated assertions) which suit the opinions of the author, any chance of arriving at a reasoned conclusion in all the noise is, frankly, impossible.

The so-called debate between the remaining contenders for the Labour Party leadership seems also to be constrained into a debating space which accommodates these lies. The usual suspects in the media will continue to ensure the dice stay loaded.

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Stuck Inside of Mobile

… with the Oxbridge Blues again

One of the enduring myths in Britain is that grammar schools aided social mobility. I will aim to demonstrate this really is a myth.

It’s undeniable that the UK has the worst record on social mobility in the western world: the graph below, taken from a just-published IMF report, shows the UK (alongside Italy) firmly at the top of the graph – which means we’re the (equal) least socially mobile country in the developed world.

Inequality and Mobility graph

So where does the myth come from? Ofsted disagrees, so it’s not them. One source is Conservative Voice, the Telegraph quoted Boris Johnson as saying so and Nigel Farage in the Express reminds us it was all Margaret Thatcher’s fault! But then, some commentators in the Telegraph disagree with others…

It’s generally agreed that social mobility was greater in the 1950s and 1960s than today and there were more grammar schools around then. But that coincidence proves nothing.

Changes in the Economy

During the 1950s and 60s, there was a major shift in working patterns, as increasing disposable income and technological progress shifted the balance of employment away from traditional working class jobs to a higher proportion of white-collar workers. Growth averaged 2.8% a year. This shift in the economy created the demand for more middle-class workers, which necessarily meant that many people from a working-class background moved up the social ladder.

By contrast, between 1980 and 2014, when growth was lower at 2.1% and most of that was grabbed by top earners as inequality increased, technology tended to destroy the middle-class jobs that were created a few decades earlier. More recently, the shift away from reliable, well-paid jobs to part-time and zero hours contracts has witnessed a halt to long-term rising productivity and standards of living. Who would have imagined forty years ago that carwash machines would be replaced by manual labour in the 21st century?

So, for social mobility, “it’s the economy, stupid” that did it – not the education system.

Other Countries

Another look at the graph above shows that, as to be expected, social mobility in the Scandinavian countries, clustered around the bottom-left of the graph, have very much higher rates of social mobility. But all these countries have some sort of comprehensive education system. So, their schools are not holding them back. It’s also striking how low inequality goes with high social mobility. This is fairly obvious if you think of mobility as a ladder. It’s much easier to climb if the ladder isn’t so long and the spaces between the rungs are closer together.

So let’s kill off the “return to grammar schools” myth once and for all.

Myth Two

And while we’re myth-busting, take a last look at the graph above and notice which country is next-highest on the graph (meaning second worst for social mobility). It’s the United States of America, the most unequal of all the western states. So the Great American Dream that, through hard work, anyone in America can make it to the top is also a myth. As Harvard Professor Michael Sandel said in a 2011 lecture broadcast on BBC4, “The American Dream is alive and well – and living in Denmark”.

So that’s two myths busted for the price of one!

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Joining the Dots

This is a tale of Visions and Signs from God, and of the Tiger Who Came to Tea – eventually.

Jesus?

Throughout history, signs and visions from a God or gods have been reported in all sorts of places: lights and cloud formations in the sky, entrails, tea leaves (in pre-teabag days!) and other natural phenomena. They often lead to amazing acts of bravery or compassion – sometimes even to being burned at the stake.

Here’s a fairly typical example of a miraculous “vision” which made the press a few years ago:

image / likeness / jesus face on a piece of toast item sold on ebay no date available web grab no fee

Yes – it’s a representation of a classic portrait of Jesus – on a slice of toast.

Now look at this picture:

Random dots

It’s just a random set of dots. But, now watch this short video:

We can’t help but “see” moving human figures doing a variety of actions: it’s just moving dots. But our brains are very good at joining the dots. What’s going on? Why do our brains trick us in this way?

Tiger?

In evolutionary timescales, it’s but a blinking of an eye since our hunter-gatherer days.

Imagine a scene from this period. Times are hard for the tribe. Food is scarce. Two hunters are out looking for food to kill. In the middle distance, Hunter A notices a movement in the bushes. The subtle changes of light and dark patterns in the leaves and branches alert him instantly. It’s the tell-tale pattern of movement of a tiger on the prowl. He runs for cover. Hunter B notices nothing and carries on hunting.

Nothing happens. It’s just the wind in the trees.

The same story is repeated for ninety-nine days. Hunter A is hungrier and more tired than his companion, because of all the unnecessary running around. But on the hundredth day, there really is a tiger!

So the moral of this tale is:

  • Hunter A, tired and hungry though he is, goes on to pass on his genes to his children.
  • Hunter B is eaten by the Tiger Who Came to Tea on the hundredth day.

And that, dear reader, is an example of what Charles Darwin first called “natural selection”.

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So, Was It Labour’s Fault?

Before the Tories finally get away with their version of history, let’s look at a few facts….

Debt

In 2010, the UK government debt stood at £1,100 billion pounds, no small sum! But when expressed as a percentage of Gross Domestic Product (GDP) – roughly national “turnover” – this comparison with other countries in 2010 gives some perspective:
Greece:                       170%
USA:                               90%
France:                       110%
Germany:                    95%
UK:                                 60%
So, in comparison with other countries, our debt was relatively small.

Yes, but how does this compare with past years? This graph gives some perspective:

UK National DebtOver a 300 year perspective, debt rose slowly and then more rapidly to its all-time peak, just after the battle of Waterloo in 1815, of over 2½ years’ GDP. The next 100 years were spent slowly paying off this debt. The years from 1914 to 1945 show a sharp rise, reaching almost the same peak level at 238% of GDP in 1945. It then fell to a low of 29% and has continued to rise after 2010 to around 80% today, the steep rise following the global economic crash in 2008. (It’s worth noting, in passing, that the near-record levels of debt in 1945 did not prevent the Labour government creating the NHS three years later – and that wars are very expensive!!)

So, debt in 2010 was not exceptionally high by historical standards.

Deficit

So, what about the deficit: the ability of the government to live within its means in any one year? This graph shows the position since the start of the Thatcher government in 1979:

UK deficit 1979 to 2015The solid blue and red bars above show the actual deficit for each year of Conservative (or Conservative-led) and Labour governments respectively. The pale pink shows a hypothetical scenario for the years 2002-3 to 2007-8, which is when the Tories said Labour should have had a budget surplus. I’ve used a fairly arbitrary figure of 1.3%, which, by historical standards, would have been quite an achievement.

So what can we tell from the figures?

  • Their track record shows the Tories are in no position to lecture Labour about budget surpluses!
  • At March 2002, the final year of Labour surpluses, national debt stood at 29.3%, close to the record low.
  • Six years later, after Labour “profligacy” and at the start of the global crash, it had risen to 36.7%, a rise of just over one percentage point a year.
  • In the next two years, deficits rose sharply causing the debt to shoot up another 25 percentage points, to 62%. This resulted from the “nationalisation” of record private debts by rescuing the banks and pumping money into the economy.
  • Deficits then slowly decline to around half the 2010 level, in contrast to Osborne’s prediction, at the 2010 “emergency” budget, of eliminating the deficit by 2015.

What conclusions can we draw? On some simplifying assumptions (which work very much in the Tories’ favour), if Brown and Darling had followed Osborne’s retrospective advice, national debt would have fallen to a 300-year low of 25% of GDP at the start of the crash, rather than the actual 37%. This certainly would have helped a bit, but is enormously overshadowed by the effects of the recklessness of the financial sector.

Who’s to Blame?

No one saw the crash coming in 2007-8. Mervyn King, Governor of the Bank of England said it wasn’t Labour’s fault, but rather “a shared intellectual view right across the entire political spectrum”. Even using my simplifying calculations (heavily biased in the Tories’ favour), blame would be apportioned:

  • 80% financial sector
  • 20% Labour Government.

And that’s before we even consider the benefits (Sure Start centres, increased NHS spending, etc.) that the extra money was used for.

One final thought about numbers – just a coincidence, I’m sure:

  • 37%: National debt at the start of the crash
  • 37%: Proportion of the vote to secure a Tory Government in 2015.

It’s a funny old world, isn’t it?

 

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Why George Osborne Is Only Half Human*

* economically speaking

Two events from recent history:

  1. The Berlin Wall fell in 1989 – the symbolic end to communism as a way of organising society and the economy.
  2. With the collapse of Lehman Brothers and government rescue of failing banks, Free Market Fundamentalism – my term for neoliberalism or neoconservatism – collapsed in 2008.

No serious commentator in the west or in the former Soviet bloc doubts event one, but many are still in denial about event two. Gideon George Osborne is one such person.

The “EffEmEffs”

Now, to back-track a bit. (This is not meant to be a lecture on the history of economics. Much, perhaps too much, has already been written on the clash of the ideas of Keynes and those of Hayek and Friedman. Suffice it to stay, the latter got the upper hand nearly forty years ago and won’t let go.)

As is well known, the core message of free market fundamentalism is that market forces are the best and most efficient way of organising society and the economy. Each individual pursuing his or her own interests leads to the best possible outcomes. Governments should “keep out” from interfering in the workings of markets.

I was instinctively against such ideas when they first emerged into public debate in the early 1980s, but could not articulate a full, coherent argument against the FMF movement.

Markets Increase Inequality

It was clear even then that free markets, left to themselves, would, over time, lead to ever increasing levels of inequality. The “invisible hand” of millions of individual decisions about which products and services would be bought and sold, and at what price, inevitably leads to an economy at odds with people’s preferred wishes overall. There would be more luxury goods in the world and fewer doctors, nurses and teachers than people would choose if asked to express their priorities directly. The reason is simple: in free markets, choices are made by the “votes” of each transaction: the more money someone has, the more “votes”. Markets thus respond in a way that makes poor people poorer and the rich richer. Even the smallest initial levels of inequality, processed through the amplifying effect of repeated transactions with the rich getting most say, lead to an ever-widening gap between rich and poor. This is an immutable law of free markets.

The Psychopathic Economy

Imagine for a moment, if you will, that the economy is a person. We would say that that person, exhibiting the behaviour required by the FMFs, has a severe personality disorder. Such a person would have a high risk of antisocial, predatory or even criminal behaviour. In lay terms, we’d call them a psychopath.

Curiosity Conscience Competition CompassionNow, using the Four Cs framework from my earlier post Being Human II: The Four Cs, it is easy to see why this should be so. Free market rules (i.e. pursuing self-interest) do not represent human thinking. The twin attributes “curiosity” and “competition” are modelled fully in the workings of markets. But the balancing attributes of “conscience” and “compassion” are missing completely.

George Osborne is our national cheerleader for the “EffEmEffs”. And it’s in that way that he is only half human.

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Jam Tomorrow on the M3

Do you remember M3? Or M1? Or M0? No, I’m not talking motorways here, I’m referring to monetarism.

Ah…! Monetarism: the new religion of the early 1980s.

In the late 1970s, the standard methods of managing the economy seemed no longer to work. Major shocks, such as the five-fold increase in the oil price, had wreaked havoc. Enter the Chicago school of economics under their leader Milton Friedman. Much has been written about his ideas and I don’t plan to repeat them here. But these ideas had a profound effect on government thinking which continue to this day. Even Dennis Healy, Chancellor in Jim Callaghan’s government, seemed to think there was something worth considering. But it was Margaret Thatcher and Chancellor Geoffrey Howe who were the true believers.

There was much talk about the definition of what was money – hence the various M’s – and its “velocity of circulation”, which was asserted to be stable, at least in the long term. Followers of Keynes hit back with their hero’s famous “In the long run, we’re all dead” quote from 1923. But, at the start of the 1980s, Howe pressed ahead with great vigour to implement policies based upon Chicago school thinking.

And what happened?

Uk Growth 1975 to 1986
UK National Growth 1975-86

As can be seen from the graph, the great monetarist experiment plunged Britain into a wholly unnecessary recession, which lasted about three years. The main consequence was the permanent destruction of much of our manufacturing industry, from which we have never recovered. The very lop-sided state of our economy towards services, and in particular financial services, starts here – we never did get the “jam tomorrow” promised by the theorists.

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Freedom or Crucifixion?

Towards the end of Monty Python’s Life of Brian film, there is a scene where a row of condemned prisoners shuffle past a sympathetic Roman officer (played by Michael Palin). He checks each prisoner to ensure they are in the right line and asks each in turn “Crucifixion?” The first few prisoners confirm this and the officer directs them to where they can pick up their crosses. One prisoner tries it on: he says it was all a mistake and that he was promised his freedom. The officer immediately believes him but, on the brink of his release, the prisoner admits he was lying and he’s really due for crucifixion.

Given the choice, would you opt for freedom or crucifixion? The answer, in modern parlance, is a “no brainer”.

Thomas Picketty’s book Capital in the 21st Century is a review of western capitalism over the past 200 years. Some of the more depressing findings in the book are:

  • Income inequality was extremely high in Europe just before World War I
  • Inequality in the USA has now risen above this level, with Britain and other main European countries not far behind (see chart below)
  • The fall in inequality in the mid-20th century was the result of the two world wars; inequality is now climbing back to its “natural” level.
Income of top ten percent
Proportion of national income going to top 10% (click to enlarge)

The graph above shows a measure of inequality of income; inequality of wealth is far higher.

Picketty argues that the fall in inequality after the wars was due to a combination of two exceptional factors:

  1. The physical destruction of capital and the earnings derived from it, through real estate, bonds, stocks and shares, etc.
  2. Emergency high levels of progressive taxation and similar policies (war bonds, etc.) made possible by changes in popular attitude: wartime solidarity, need to rebuild infrastructure, etc.

He goes on to show that, under current economic policies, inequality will continue to rise to equal or surpass the pre-1914 levels. He argues that, in the long term, this would be incompatible with modern liberal democracy: sooner or later, it will end in tears – war or revolution or some such. He suggests a less violent alternative:

  • increased progressive taxation (especially on wealth)
  • closer international cooperation on taxation policy, starting with the countries of the EU
  • inter-governmental exchange of data to give transparency of global wealth.

These measures would also enable systematic steps to reduce or eliminate tax havens, currently estimated by Gabriel Zucman of the LSE to harbour about 10% of global GDP.

So, what’s it to be? War or taxation? Freedom or crucifixion? It’s a no brainer.

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