It is a moral issue

If you are old enough, you can remember the Profumo affair of the 1960s.  A junior Minister of Defence was discovered to have had an extra-marital affair with a young woman who had also been involved with a Russian naval attaché.  It caused a tremendous furore, of course, as it had all the elements loved by the media and the public – pretty girls, politicians caught in flagrante, a touch of spy mania and the red menace.  Macaulay had written many years before that there was “no spectacle so ridiculous as the British public in one of its periodical fits of morality.  Richard Davenport-Hines wrote the central work on the affair, An English Affair: Sex, Class and Power in the Age of Profumo, and spoke of 1963 as a year when “the soapy scum flowed after the sluices of self-righteous scurrility were opened”.  However, my memory was that there was little talk of morality involved.  Quintin Hogg, then Lord Hailsham, was regarded as rather old-fashioned when he insisted that “this is a moral issue”.  People said that they were not interested in the sex, dear me no, people should lead their own private lives, no, we’re terribly modern here, not a moral issue at all, what mattered was the security issues. That, and he lied to Parliament. But not the bonking, we’re relaxed about that. Really.  But “wrong” – what does that mean ?

Cut to the present.  What we have is something infinitely more important than a minor politician being caught in the wrong bed.  We have societies all over the western world fracturing under greater pressure of inequality.  The share of national income going to the top 1%, and the top 0.1% has doubled between 1979 and 2007.  In the USA, top executive remuneration has risen by 37% since 2009.  In 1975, it was just 20 times Chief executives at America’s 350 biggest companies were paid 20 times as much as the average worker: in 2011, 231 times as much. These are astonishing figures, and Deborah Hargreaves of the High Pay Commission shows that they are replicated here.  The trend for very high executive pay started in the USA, but has spread (you may say infected) the UK and other economies.  This is all going on at a time when the incomes of the mass of people are static or falling.  The question  is – why is it happening ?

There are two competing schools of thought.   One explanation is simply greed, that top executives have found out they can grab a larger amount of the wealth that comes through their hands, and they are tucking in enthusiastically.  This is technically known as ‘rent-seeking’, but you and I might introduce similes about snouts and troughs.  David Marotta’s article in Forbes compares rent-seeking behaviour, ever so gently, to piracy.  He nevertheless points out that “rent-seeking never encourages productivity. The production of valuable goods and services is maximized with strong property rights when little is wasted in efforts to seize the surplus of others or to prevent others from seizing our surplus. During a strong economy there are fewer incentives for rent-seeking because production is highly rewarded. But when economic times make it more difficult to produce, it becomes more attractive to rent-seek someone else’s surplus”.

There is a rival theory, one that claims we are experiencing a long term change in the nature of the economy, which has become ‘hourglass shaped’ – there is a demand for jobs at the very high skilled end of the market, and jobs at the low skill end, but the demand for semi-skilled and skilled manufacturing and administrative jobs in the middle has declined.  This is said to be due to various factors – computerization of administrative tasks, globalization of manufacturing, and so on.  This argument also claims that the high pay of top executives represents their extraordinary abilities, abilities that are scarce and have to be bid for.  It’s worth a few millions to keep on board an employee who can add billions to a company’s value.

Why do I find the first theory more attractive than the second ?  Well, a number of reasons.  The argument that top executives have extraordinary abilities that must be rewarded seems at odds with common stories of executive performance – where men (and it’s almost always men) get paid very large sums of money to ruin a company or a bank.  An example from today’s paper: the chief exec who dragged Serco through the mire of allegations of lying to maximise government contracts has just been paid off with £7m.  Think what he would have got had he raised the company’s reputation.  The timid rebellions that have happened (“shareholders’ spring” indeed !) have usually occurred when  investors have reached their wit’s end about executives enriching themselves whilst their business fails. As Nils Pratley pointed out in the Guardian, the company AGMs may have provided more entertainment:

  • the Barclays‘ board was told it was “a disgrace to capitalism”.
  • the directors of insurance giant Aviva were accused of being “more concerned about their remuneration packages than growing our business”.
  • at Man Group, the hedge fund manager with a shrivelled share price, the highly paid chief executive was asked, witheringly: “Sir, does it really feel like a $7m year to you?”

but whilst investor revolts have claimed some scalps, radical reforms to how companies are managed and directors paid is years off.

I would also wonder how a social movement on the scale – a 30% hike in two or three years – can possibly be the result of long-term economic factors.  It’s simply too quick for that to be true.  And weren’t firms in the 1970s in need of exceptional individuals to run them well ?

Another reason I’m sceptical is that the behaviour has bled into the public and charitable sectors.  Head teachers used to earn about twice what their average staff member earned.  It would now be, I guess, four or five times as much.  I can remember being recruited as a Principal for £47,000 in 1992 and retiring on a salary of £110,000 ten years later.  The news from the BBC, from local authorities confirms the same stories.  Last year, at least 30 charity heads enjoyed six figure salaries.  I suppose you could say that the public and charitable sector has to compete with the private sector for the extraordinary talent (see above), but I was not aware that Private Colleges PLC was scouting for my services, and I’m damned sure start-up media companies won’t be employing the BBC’s dumped head of Human Resources for £320,000 any time soon.   And being head of a charity or working for a public body used to be a position of respect, not another rent-seeking opportunity.

And then one must ask why the downward pressure on wages is happening in areas – like hospital cleaning or social care visits – where there is no competition from the Far East nor possibility of computerisation.  The Guardian reported this week that many care homes are trying to pay less than the minimum wag for staff involved in the care of the old.  The reason that those workers are squeezed is not due to secular movement of labour demand, but simply because they are powerless.

You can argue that sorting this injustice out would be good for society, and good for the economy. There are certainly powerful arguments on that side.  However, what’s wrong with saying that it is a moral issue ?  People are behaving in an unacceptably ruthless way.  A recent book draws attention to the problem of people behaving like assholes.  In other areas of our life we use the law to restrain the selfishness of individuals.  We should do so here.  The study of the benefits of more equality The Spirit Level has been attacked (of course) by those wanting to avoid any action against the rich, but still seems to hold up pretty well to me.  Interestingly it points to countries that have made the choice of greater equality, which is now including some surprising names such as South Korea.  A look at other countries shows more decisive action against executive pay abuses: in Australia, a board that resists the wishes of shareholders to review executive pay has to put itself up for re-election.  The Swiss (!!) too have taken action.  The US government forbade executives from companies rescued by the state from having incomes over $500,000, though the tide is going out there as the economy recovers.  If you agree with me, inequality is not inevitable, it is, as Nobel Laureate Joseph Stiglitz recently showed in the New York Times, a choice.

The Archbishop of Canterbury has got it right.  To go back to 1963, it is a moral issue.

 

Footnote: one galling part of the rip-off culture is that forms are now aware we think badly of them, and so pretend to enormous concern about social issues.  Eat enough chocolate bars, and the company will give sports equipment to schools.  TV advertisements are full of green claims, of pretty children and winsome old folk being helped by our corporate friends.  Firms keep claiming the high ground – a commitment to care, to community, to what matters to you and your family as they do ever more shitty things

Conference season 2013

It’s the time of year for the party political conferences, and what a sad time for those who are interested in the political health of our nation.  Conferences were never the most uplifting of events, but in the last, what, twenty years they have become ever more depressing.  This was a result of British politicos visiting the USA, and noticing that the parties there were not engines for developing ideas or transmitting values, but support organisations, machines for raising money for the political elite.  It used to be said that politics was show business for ugly people, and political parties had become fan clubs for the tone deaf.  As a result, conferences no longer have any role in forming policy and so become a tribal gathering at which ritual dances are danced, and ritual songs sung, with little content except that our opponents are awful people.   To be fair, the Liberals had a few motions that might have embarrassed the leadership, but that might have been related to their leaders’ abandonment of liberal values and the related collapse of public support.

What happens is that the conference is a build up to the speech of the leader, featuring a succession of nonentities who stand up and fill their moment of glory by saying “I’ve got a message for David Cameron/Nick Clegg/Red Ed Miliband” and then adding a few inane insults. Their opponents are without exception, rogues or idiots.  The leader appears on stage in a nice suit, makes a lot of vacuous statements generally involving change.  Change, it appears, is a good thing, except when your opponents do it, when it is a bad thing (see my blog of last April).  The great man then announces a trifling reform that will make Britain Great again, and ends with uproarious applause. His wife then strides adoringly towards him in a dress that is neither too cheap or too costly, and embraces her hero.  The TV and press then analyse how good the speech is, with the aid of an opponent (“he just hasn’t answered any of the vital questions”), a supporter (“I think he answered all the questions”) and a tired cynic (“Did you notice how his tie know slipped down whenever he mentioned the economy ”).   All is swiftly forgotten and we the go on to the next conference to repeat the awful business.

Ed Miliband came out with a nice phrase during his conference speech – “Britain can do better than this”.   The political parties can certainly do better.  Where we should start, I think, is an analysis of the main issues facing the country.  These are not the state of marriage or unemployed shirkers or for that matter energy prices or school meals.  Once you get away from foreign policy matters, about which the parties tend not to disagree (apart from Syria, where I think Miliband played a blinder), there are three crucial matters.  Firstly, the low productivity of the UK economy, private and public sectors alike; secondly, the living standards of the majority or our people, with static or falling real incomes and increasing inequality; and lastly the power and effective management of the corporate sector.  All three are interlinked and intertwined, and none are simple.  The party conferences should be a think tank, where experts and party members confront proper, evidenced research and policies that will make a difference (horrible phrase, I know, but it has its uses) to these issues.

What we emphatically do not want is a parade of politicians and their acolytes finding the most miserable views from a focus group – the poor are idle, foreigners are untrustworthy, educational standards are falling – or from rich people – taxes are wasteful, only the private sector is efficient – and trying to win votes by getting us to turn inwards against our neighbours and against the disadvantaged.  This appears to be the line that the Tories want to follow, following the US Republican example, and with the appalling encouragement of Linton Crosby.  One moderately encouraging result of the last few weeks has been the lack of success the press has had in depicting Miliband as a dangerous radical for proposing price restraint, more houses and action on training for young people.  To my mind the most damaging accusation against the Labour proposals is not “this will paralyse the economy” but to ask “why didn’t you do this when you were in charge ?”.

There’s a very good analysis of the organised hypocrisy of the conference speech here.  But if you would prefer a funnier and more cynical approach – almost as good as the famous Peter Sellers track – follow this link.

Chutzpah

Today, it’s just me pointing to some good stuff in other people’s writing, blogs and tweets.  Firstly, there is the extraordinary sight of people responsible for the financial melt-down of 2008 denying they had a part in it, and saying that state intervention (which saved their respective asses) is not a good thing.  Here’s Paul Krugman open mouthed at the chutzpa of Alan Greenspan, revered in the days of light-touch and deregulation as a financial genius, but now revealed as the worst ex-central banker in the world.  And then there is George Monbiot gasping at a new book by Matt Ridley, who was the chairman of Northern Rock when it became all but insolvent, who begged the government for help, now saying that the state is a flea sucking the life out of the economy.  Oh, and adding some climate change skepticism to enrich the mixture.  Jeez.

And for those of you expressing your own amazement at the behaviour of utility companies, an article telling of the historic struggle to take the control of water – a “dangerous monopoly” – out of the hands of greedy capitalists.   Amongst those engaged in this campaign were leading Conservatives of the day

Rock’n’Floury Roll

Economics, generational conflict, pop music & TV.  You can’t accuse me of not being eclectic.  So here is my contribution to baking, the new rock’n’roll.  It’s a recipe for eight brown rolls taken from a pack of Allinson’s Seed and Grain White Strong Flour, and it works.

Ingredients:

500g Allinson Seed & Grain Flour

7g Easy Bake Yeast (i.e. 1.5 teaspoons)

300ml Pale Ale or Stout

15ml Sunflower oil

I tbsp treacle

I tsp salt.

Here’s what you do.

  1. Mix the flour and salt in a large bowl. Stir in the sunflower oil and then the yeast (important to add the yeast before the liquid – but not disastrous)
  2. Make a well in the centre of the flour mix, add the beer and treacle and mix together until it makes a soft dough. Slowly add small amounts of extra flour or water if you think it’s becoming too thick/wet.
  3. Turn the dough onto a lightly floured worktop and knead until smooth and elastic
  4. Divide it into eight equal pieces and make into round rolls. Place on a lightly oiled baking tray, and cover with cling film enough to keep out the air but not enough to push down on the rolls when they rise.
  5. Put them in a warm place until they rise to double their size (this is called proving)
  6. Preheat the oven to 220 degrees C (fan 200)
  7. Place rolls in the centre of the oven for ten minutes. Turn the oven down to 200 (fan 180) and give it another ten minutes until the rolls have risen, are golden brown and sound hollow when you tap the bottom

This will all take about an hour plus the time for proving – maybe another forty minutes to an hour.  They are delicious – ideal for ploughman’s lunch, or even eggs Benedict.  The flour comes in 1kg packs, and lasts months, so there is enough to make two batches.  I predict, however, you will not wait four months before making your second batch.

Back to controversy soon, and there’s plenty of it.  The inter-generational spat has broken out again, and the productivity problem needs my attention.  Then there’s the abuse of capitalism.  So much to say, so little time.

Quizzes

It’s a Monday afternoon, and you are at a loose end.  So make yourself a mug of coffee, and settle down in front of the TV for some entertainment.  Start off at 3.15 with Perfection on BBC1, then when that ends at 4.00, switch over to The Tipping Point on ITV. That will take you through to 5.00, and you’ll have a fifteen minute wait until Pointless starts.  That will take you round to 6.00, when you can avoid all that nasty stuff on the BBC News by flicking over to BBC2 to see the Eggheads in action.  Phew, time for a break and a light snack, a tea interval like they have in Test Matches.  But make sure you are back in your chair for 8.00, when University Challenge starts, and when that stops change channels quickly so as not to lose a second of the delicious Only Connect.  At the end of that ?  Well, settle back and ‘well done to all of you at home’.  You have just survived four hours of interrogation,  more if you took in Classic Mastermind at 1.00 and The Weakest Link at 1.30.

What is so attractive about quizzes, and why are there so many on television ?  I can see the supply side reasons – they must be pretty cheap to make – one set for years, no location shooting, no expensive actors or (less expensive) script writers.  But there must also be a demand side reason – the shows would not be programmed unless there was a substantial audience out there.  What do they see in them, and what should be our attitude to the quiz industry ?

One factor must be a sense of identification – seeing people you like succeed, or (less praiseworthy) those you dislike lose.  That must be the reason for the desultory introductions at the start of each show – “so where do you come from ?  What do you do ? And how do you spend your leisure time ?”.  The sense of identification is strengthened, I guess, by the fact that the contestants’ default answer is support for a football team – “For my sins (horrible phrase) I support Ipswich Town/Swindon/Blackpool”.  The sense of identification is helped by the way most quizzes now have multiple choice questions, usually with only three options: and one of them is usually nonsensical.  This allows a much wider range of people to quiz along with the contestants.  It also contrasts starkly with my favourite French quiz Questions pour Un Champion, where no such help is given: you either know, or (under competitive time pressure) you don’t.

There could also be the reverse of identification – realizing that you know something that the contestants do not, and being able to feel a sense of superiority as you explode “why do they let these idiots on television ?”.  A brief look at Private Eye’s Dumb Britain will give you a few wonderful wrong answers, and there are more every week.  I can forgive someone not knowing that Portsmouth hosts the Spinnaker Tower, but thinking that it hosts the Mary Celeste is a little harder to pass.  Just yesterday we had a contestant who placed Boris Johnson in the last Labour Cabinet.  Hmmm.  Having said that, many of the apparent bloopers are generational.  There is really no reason for a teenager in University Challenge to know who was in Harold Wilson’s cabinet, thirty years before they were born.  It is the equivalent of asking me who was in Bonar Law’s cabinet: I don’t know, and I am a politics nerd.

Is there a more worthy reason for the success of quizzes – perhaps, the idea that we value knowledge and learning and want to see it succeed ?  This rests a little on whether we see the sort of general knowledge that quizzes need as part of our cultural heritage or important to the understanding of science or politics.  Often, there isn’t.  If you understand American history you will know who was President during the Civil War; you need to know about the periodic table to understand chemistry.  But such questions are the minority.  There is no value knowing how far horses run in the Derby, or the most popular Steve McQueen film.  I would argue that, whilst reading or art appreciation are important for a rounded human being, this doesn’t give any particular importance to knowing who won the Booker or Turner Prizes in a particular year.

I used to be a member of a pub quiz team.  Indeed, I was a semi-finalist in Brain of Britain many years ago[1].  I reckon you can divide keen quizzers into two categories – those who like to show off their general knowledge, and obsessives who like winning and are prepared to put in the hard graft learning lists of Oscar winners and Austrian monarchs that makes that more likely.  I will now avoid the attentions of my learned friend by suggesting which members of the “Eggheads” fall into each category.  Many keen quizzers can tell you which is the longest, or shortest play by Shakespeare, and which one has a character run off chased by a bear, but most would themselves run in terror from actually attending a performance.

[1] When I took over a troubled college, the local council included this information in its PR handout, prompting a member of staff to ask why they hadn’t been sent someone who could get to the final.

Economics – a Nobel effort

The names of this year’s Nobel Prize winners have been released over the past few weeks.  This is the real celebrity news, naming people that you either have never hear of, or have heard of without being quite clear what it is they have done (like Higgs).   To my shame, I had never heard of the magnificent Organisation for the Prohibition of Chemical Weapons, winners of this year’s Peace Prize.

As a former economics teacher I should really be giving you guidance on the winners of the Economics Prize.  It says something for the state of modern economics that the prize is being shared by three people who propose opposing theories.  As John Kay said in the Financial Times, “it is like awarding the physics prize jointly to Ptolemy for his theory that the Earth is the centre of the universe, and to Copernicus for showing it is not”.

Eugene Fama is known for the Efficient Markets Hypothesis, which tells us that free markets accurately price assets by incorporating all public knowledge.  This suggests that, when investing in the Stock Market, you are best to invest in a tracker fund that simply replicates the market, rather than an actively managed fund where investment managers choose promising stocks (and try to second guess the real value of assets).  In fact, this turns out to be pretty accurate – actively managed funds usually do worse than the stock market average, and charge you extra for the service.  As an outsider, however, you may think feel the idea that market prices are always right  a curious theory to hold : if it were true, no-one would ever (non-corruptly) make money out of stock market speculation, and commodity bubbles would never happen.  In fact, Fama denies that bubbles happen, telling his interviewer in the New Yorker that the word is meaningless .

On the other hand, one of the other winners, Robert J. Shiller (so near to being Bob Shilling – what a great name that would be for an economist) not only says bubbles can happen, he predicted the US housing crash.  Where should we go in all this ?  I’m not sure.  I respect people who say that the EMH may not be great, but it is useful and the best we have got.  I remain with deep suspicions about the enthusiasm shown towards a theory that says markets are just great, and (by implication) governments should leave them alone.  I remember that Joan Robinson, herself no mean economist, said that economics has two functions. One is to explain the behaviour of the economy, the other was to supply an ideology for the ruling class.

The best explanation for laymen I have found – and that, now, includes me, I’m afraid, is to be found in a blog by John Kay.  It’s a bit of a long haul, but you may be amused by his discussion of the use of evidence in economics, and his revelation of the number of assumptions that have to be made to find that the EMH (and a lot else in market economics) is true.

Chinese whispers

The Republicans in the US Congress are now saying the reason they are paralysing government is to stop Chinese having power over the USA by buying its bonds (and funding the deficit).  This was to be expected.  The right rarely say “we want to reduce taxes on the rich because we have always wanted to hang on to all the money we can” or “we should cut welfare because helping the poor is a stupid idea” or  “we want to reduce employment rights because we think bosses should have a free hand”.  What they say is “we are so worried about the national debt that we regrettably (holds onion under eyes) have to cut welfare” or “to make the economy competitive, we need to cut taxation on the wealth creators”.  Now the false alarm about the US deficit – it is falling, and it was not a problem – has been called, an alternative enemy has to be found, and the Chinese are an ideal target.  “There’s this nation, billions of ‘em, they look really foreign, and despite productivity less than 20% of US levels, they plan to come and eat your breakfast.  And they will unless we cut the debt, slash welfare and reduce the rights of working people”.

For anyone seduced by this stuff, see Ben Chu’s recent articles as a welcome rebuttal.

Oh, and if you want a bit of “O” level economics, we don’t get poorer if other nations get richer.  If we did, we would be poorer than we were in 1900, and we aren’t.  The only thing that can make us poorer is bad economic policies, like we have at the moment.  I’m half way through a longer piece on the UK productivity problem, what it is and why it matters more than the national debt or immigrants or much else, but this post will cover things until I have the time to finish that.