The power of sterotypes
Reputations can be self-fulfilling prophecies ; if you give a man a bad name, he‘ll live down to it. A new paper (pdf) by Thomas Dee shows this.
He did an experiment at Swarthmore College, asking a group of students to take a GRE test. Before the test, some students were asked about their sporting activities, and whether these conflicted with their academic work, whilst others were not asked.
And Mr Dee found that the athletes who were asked these questions performed significantly worse than the athletes who weren’t.
This corroborates the finding of an immediate “Obama effect” upon blacks’ exam performance. As Obama became more prominent, the stereotype of blacks as non-cerebral declined, and so test scores improved.
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Has the VAT cut worked?
Does Nicolas Sarkozy have a clue? He says the VAT cut had “absolutely not worked”:
Britain is cutting taxes. That will bring them nothing. Consumption continues to decrease.
However, official figures (pdf) flatly contradict this. They show that the volume of sales actually rose by 1.6 per cent in December, to stand 3.9 per cent higher than last December. Of course, there are all sorts of ways to quibble with this data – ordinary noise is magnified by uncertainties about seasonal adjustment processes and the fact that the statisticians’ definition of “December” actually stretched to January 3.
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Yet more Tory economic stupidity
I don’t want to make a habit of defending Yvette Cooper, whom I’ve always thought of as the poor man’s Ruth Kelly. But for Iain Dale to accuse her of economic illiteracy is rather like Ann Widdecombe calling her ugly.
Ms Cooper says:
We have never had a policy of targeting the pound. Our policy has been to target inflation.
To which Iain replies:
Last time I looked at the laws of economics they told me that a weak currency means the price of imports goes up, which leads to higher prices, therefore higher inflation.
But there ain’t no law about it. If exporters price to market – that is, accept the prices prevailing in their target market – a weaker pound will lead not to higher prices but rather to a squeeze upon exporters‘ profit margins.
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Nationalising banks isn’t a bad idea
Seamus Milne says it’s time to fully nationalize the banks. Leaving ideology aside, it’s not obvious that this is a stinkingly bad idea.
For one thing, Seamus is right that the measures taken so far have not worked. As the Bank of England says today:
Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult. The Committee noted that it was unlikely that a normal volume of lending would be restored without further measures.
The simple case for nationalizing banks is that they would be able to raise cash much more cheaply and easily than they can now; before today’s Bank Rate cut, 3 month Libor was 3.8% whilst the 3 month T-bill rate was just 1.7%. This would almost automatically allow them to increase cheap lending.
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Misunderstanding economics
Guido has done us all a favour by exposing the innumeracy of some Tories. He accuses the Chancellor of making “fantasy forecasts” and quotes a correspondent querying Darling’s forecast that the economy will grow by 0.75% this year:
Now, when the chancellor stood up at the dispatch box, three quarters of 2008 GDP growth were known:
Q1 0.3%
Q2 0%
Q3 -0.5%
In order to hit the forecast 0.75%, the economy has to grow at feisty 1% in the fourth quarter. Has the Chancellor been outside recently?
This is just drivel. Let me explain.
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The benefit of inequality
The UK’s tax system is regressive* and income inequality is high. Whilst the left bemoans these facts, they might be necessary for Darling’s plan to increase borrowing to succeed in supporting economic activity.
Last night, Darling said the rise in borrowing would be only temporary. He promised to “return borrowing and debt to a sustainable level – once these shocks have worked through.”
This raises an obvious question. If government borrowing today merely means lower state spending or higher taxes tomorrow, why should it boost aggregate economic activity at all? Won’t it just cause tax-payers to save in anticipation of higher future taxes, or public sector workers to save in anticipation of redundancy?
What sterling crash?
The Tories are trying to blame sterling’s fall on Gordon Brown. And they’re failing. Fraser Nelson writes:
The sterling crash has now begun in earnest. The pound has today (today!) fallen 9% against the Yen and is off 4% against the dollar to a lowly $1.56 with forecasts of $1.40 or lower next year. Against any other currency you may mention, it’s now plunging.
Don’t mention the Aussie dollar: the pound’s near a four-year high against that. And it’s only 1.6% below its six-month average against the euro.
The fact is, sterling is largely a sideshow now. Although its trade-weighted index has fallen 5% in the last month, the majority of its decline happened over the winter. Sterling weakness is an old story. Instead, the story is about the dollar and yen. It’s these that are soaring, not sterling that’s crashing. This is probably because a scramble for cash is forcing investors – perhaps especially hedge funds – to close positions. And as many were short of dollars and yen, so these have risen.
And this is just drivel:
There is a serious prospect that Brown will try and inflate his way out of this debt problem, a prospect which terrifies currency dealers.
If this were a serious prospect, gilts would have sold off along with sterling – inflation is terrible for government bonds. But they haven’t. Indeed, spreads between 10 year gilts and their US equivalents are close to their lows for this year, whilst spreads over 10 year Bunds are an insignificant 0.13 percentage points above their post-2000 average.
Far from being a sign of trouble, sterling’s weakness is actually a help. In making exports and import-substitutes cheaper, it will – with a long lag – help boost profits and economic activity and relieve the recession.
Fraser continues:
I have heard serious people talking about parity with the dollar.
If he knew anything about FX markets, he’d one that the one parity that does exist is the one between the value of an exchange rate forecast and that of a wet fart.
Healey blurts it out
Local government minister John Healey has blurted out the ideology of our rulers. Councils, he says:
are in a different position from individual savers. They are intelligent, they’re well-informed investors…
This is not just false. It is the precise reversal of the truth.
The fact is that it is individual savers, on average, who are intelligent and well-informed, whilst it is the professionals who get it wrong.
It is not ordinary individual investors who caused the present crisis and need a multi-billion pound bail out. continue reading… »
Bevan or Thatcher: who’s relevant?
At the end of Greg Dyke’s programme on Nye Bevan, Michael Heseltine says Bevan is “irrelevant today.” I can only hope that remark was made some time ago, because from where I’m sat, it’s gibber. Bevan is a highly relevant figure.
Paulson and the rhetoric of fear
Henry Paulson said Tuesday:
The market turmoil we are experiencing today poses great risk to US taxpayers. When the financial system doesn’t work as it should, Americans’ personal savings, and the ability of consumers and businesses to finance spending, investment and job creation are threatened.
How true is this? There is some empirical evidence here – the last 12 months. And this seems to undermine the more alarmist senses of Paulson’s claim.
The Fed’s flow of funds data (table 1 of this pdf) show that between Q2 2007 and Q3 2008, net borrowing by the non-financial sector fell by more than half – the biggest annual fall for 50 years. Borrowing by households fell from an annualized $950bn to $197.3bn. Borrowing by non-financial companies fell from $846.5bn to $390.3bn. continue reading… »
Lefties should accept the failure of the state
Here are four related items:
1. Universities minister John Denham wants universities to do more to recruit talented students from poorer backgrounds. Which only raises the question: why aren’t state schools doing more to bring out the talents of the poor?
2. The TUC wants an old-fashioned fiscal stimulus to forestall recession, even though any announced policy – in the Pre-Budget report – could well come after the recession has already started.
3. Centre Left says:
The left must also engage in a sustained defence of the state. Illustrating how an active and engaged state can provide for a fairer Britain, can intervene to remove inequality.
Which raises the question: if the state can provide for a fairer Britain, why hasn’t it already done so?
4. Bryan Gould wants politicians to have more control over interest rates, even though this was tried for 25 years – between the collapse of Bretton Woods and 1997 – with poor results.
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Brown isn’t ‘bonkers’ enough
I gather that some fat bloke who always refers to himself in the third person has suggested that Gordon Brown might be ‘bonkers’. Right-thinking people have condemned this.
My complaint is different. It’s that, to paraphrase Niels Bohr, Brown is not “bonkers” enough.
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Irrational beliefs are useful too
In a comment here, Matthew suggests that support for freedom is enhanced by egoism, in the sense of people’s exaggerated faith in their own ability to control their lives.
This is a plausible claim. It’s a cliché that opposition to redistribution in the US is based partly upon the belief of the poor that they can get rich*.
But this just shows that irrational beliefs can serve useful functions. Few people would embark upon risky ventures such as starting their own business, developing new products, or writing books unless they were irrationally over-confident of their chances of success.
And religious belief is correlated with greater happiness, more law-abiding behaviour and support (pdf) for markets.
This implies that there is a potential conflict between two forms of rationality:
1. Belief rationality, which says our beliefs should be proportioned to the evidence. This tells us not to believe in God, and that the odds of being a successful innovator are small.
2. Instrumental rationality, which says we should act so as to maximize our chosen ends.
In some cases, though, desirable goals – wealth, happiness, liberty in Matthew’s example – can be pursued best by abandoning belief rationality.
In this context, atheists such as Richard Dawkins can speak at cross-purposes with believers. When Dawkins says: “believe in evolution, not God”, he’s advocating belief rationality. When his interlocuters reply: “but my community believes in God” they are (implicitly) advancing a form of instrumental rationality; they think they would lose good things when they lose their faith.
The issue here isn’t – or at least isn’t always – one of rationality versus irrationality. It’s: which rationality?
* Irrationality isn’t always the servant of freedom, however. One source of support for repressive measures such as ID cards or 42 days detention is people’s bias to look upon the bright side, and believe that bad things – identity theft or arbitrary imprisonment – only happen to other people. This optimism bias might explain why there’s often more opposition to redistributive taxation than to restrictions upon civil liberties.
Imagine if Labour were in opposition
Unusually for a government minister, Tom Harris has a good idea. He says:
If we were in opposition right now, and the country were facing exactly the same challenges as it is now, and we were determined to form the next, new, government, what would be in our manifesto?
This is a good question for two reasons.
First, it’s a way for the party to avoid two common cognitive biases. One is ego-involvement; we all tend to defend decisions not because they are good ones, but simply because they are ours. The other is Bayesian conservatism; we stick to our prejudices too much in the face of contrary evidence.
Secondly, it allows the party to ditch some policies which were, at best, only temporary expedients. There are four I have in mind:
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Have the Tories misunderstood ‘equality’?
To those of us whose political views were formed in the 1970s and 80s, Michael Gove’s speech yesterday looked disconcerting.
He said:
Our social policy is…explicitly redistributive…we’re concerned about growing inequality…
When we talk of a broken society today one of the fractures we are concerned about is the growing breach between richer and poorer.
What world are we in, where a Tory can claim to care about equality? Is Gove sincere here – in which case he is flatly repudiating Thatcherism, or is this just another exercise in “decontaminating the brand” of Toryism?
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Why is New Labour stigmatising poor people?
James Purnell says the long-term unemployed “will be required to work full-time or undertake full-time work-related activity in return for their benefits.” (par 2.18 here).
This raises several questions. Isn’t this an abuse of language? I had thought that if you work, the money you get in return is wages.
And if you have to work 40 hours a week to get Job Seekers Allowance of £60.50, you’re paid £1.50 an hour. How is this consistent with the principle of a minimum wage?
But there’s a deeper question. Purnell could have sold a similar policy differently. He could have spoken thus:
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Cameron is disowning Thatcher’s economics
David Cameron is moving further away from Thatcherism. This is one interpretation of his call for a US-style chapter 11 bankruptcy law. He says:
Instead of companies going straight into liquidation and having to lay off staff, they get a stay of execution and they can be restructured to try to save the business, to try to save the jobs.
This is a flat contradiction of standard neoliberal economics. This says that the very fact that a company is bankrupt is a sign that it has little value; the market – customers – judges things right. The firm should therefore be broken up, so that workers can be released to find more productive employment. And in removing excess capacity from an industry, the firm’s more efficient rivals will become more profitable, allowing them to expand.
And the notion that bankrupt firms can be restructured is pish; if there were a way for the firm to become more efficient, either the existing managers would have found it, or the firm would have been bought by those who can make a go of it. That this hasn’t happened shows there’s no hope for the firm.
Now, this view was pretty much orthodox Thatcherism. “Lame ducks must go to the wall” was a cliché of the early 80s. And the reason Thatcher called coal mines “uneconomic” – rather than just unprofitable – was because she thought miners would find better work than digging up cheap coal*.
In calling for a chapter 11, Cameron is rejecting this view. Why?
One possibility is that the evidence is on his side. We know now that displaced miners generally did not (pdf) find work, suggesting that workers don’t quickly find valuable work elsewhere. There’s some (but limited) evidence that firms can turn themselves around in chapter 11. And it’s not clear that firms in chapter 11 in industries with excess capacity actually do harm their more efficient rivals. Chapter 11 does, then, have its supporters.
But there’s another possibility. Whether or not chapter 11 is good for the economy generally, it’s certainly good for investment bankers and lawyers, as creditors spend a fortune fighting over the scraps. So perhaps Cameron has just listened to his friends.
* Of course, it’s possible that Thatcher’s pit closure programme was motivated not by economics but by mere class hatred. But no-one believes this, do they?
Eat everything on your plate!
He’s getting beyond parody:
Britons must stop wasting food in an effort to help combat rising living costs, Gordon Brown has said as he travelled to the G8 summit in Japan. The PM said “unnecessary” purchases were contributing to price rises, and urged people to plan meals in advance and store food properly.
Now, I’m embarrassed to point this out, but people don’t need telling this. The more expensive food becomes, the less folk will want to waste it. That’s basic self-interest and GCSE economics.
So, why is Brown saying this? I can think of four possibilities.
continue reading… »
Power and the politics of race
This week’s events have corroborated my belief that we can learn more about society and politics from Big Brother than from Today in Parliament.
Alexandra’s expulsion from the house for “intimidating” behaviour demonstrates our ruling class’s terror of anything remotely resembling a physical threat; violence is something done to foreigners, not “respectable“ white people.
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Darling’s stupid call to restrain pay
Thisannoys me:
Chancellor Alistair Darling today called for restraint over wage rises…The Chancellor told the BBC’s Today programme yesterday: “Inflationary pay rises would be disastrous not just for the country but for each and every one of us.”
What it ignores is the fact that no pay rise I get makes a blind bit of difference to the inflation rate. And, with decentralized wage bargaining, the same’s true for each of us. Low inflation is a public good. And ideally, each of us would like to free ride on others’ efforts to provide it. The upshot is that no-one accepts a low wage rise because it leads to low inflation.
Wage inflation is low because there are two
billion Indians and Chinese threatening to do our jobs more cheaply – not because anyone wants to make a contribution towards achieving low inflation.
continue reading… »
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» How bad is the feline obesity crisis?
» Why don’t MPs pay back tuition fees instead of increasing ours?
» Obama is right to slam BP – and why capitalists should too
» Why does Phillip Blond see civic cohesion as a security issue?
» So what if the Labour candidates went to Oxbridge?
» Last night’s Labour hustings: will it get interesting or turn to torture?
» It’s now down to Ken to win London for Labour
» The Labour people need
» Blog Nation: what would you like to see discussed?
» The Labour leadership’s token contender.. and it’s not Diane Abbott
» In defence of these fraternal nominations
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