Brexit: an own goal for the Eurosceptics

brexit20winnerIt must have seemed like a good idea at the time. A while back a right-wing think tank, the Institute for Economic Affairs (IEA), launched a EUR 100,000 prize for a blueprint for Britain’s exit from the EU, the “Brexit”. The winner was announced last week, to not very much fanfare. You can read it here: Brexit Entry 170_final_bio_web. It is not surprising that our mainly Eurosceptic media have given it a low profile. It exposes flaws that go deep into heart of the Eurosceptic case. Better to stick with Nigel Farage’s meaningless soundbites. No doubt the Europhiles ignored it as its thesis is still Eurosceptic. That is a pity. This piece of work deserves to be taken seriously by both sides of the debate.

First, though: credit where it is due. This piece of work is a breath of fresh air compared to most of what comes out of both sides of the debate. It is calm, factual and objectively reasoned. It reflects well both on its author, 30-year old diplomat Iain Mansfield and the IEA. Bar one or two articles in The Economist, it is about the best reasoned thing I have read on Britain’s possible exit from the EU.

The essay answers the question of what would happen if Britain voted to leave the EU. It considers the various negotiations that would need to be made, and what these should aim to achieve. It has a stab at assessing what the economic consequences would be. Along the way it explains a lot of the facts that impinge on this (such as what is the difference between the EEA and EFTA?). This is a welcome change from the airy hopes and assertions usually made by Eurosceptics – and the equally airy scorn poured on them by Europhiles.

Its central idea is quite a sound one. Britain would not bring up the drawbridge and retreat into “Little England”, as no doubt some older Ukip supporters would like. The UK would establish itself as an open nation, promoting free trade. This reflects the economic liberalism of most modern Conservatives. They feel that membership of the EU gets in the way of the country promoting a economically liberal policy agenda.

There is one big gap in this work as a review of Britain’s options. There is no sense of industrial strategy. British business would flourish in a less regulated environment; we would trade more with emerging economies. That’s about it. Where are Britain’s comparative advantages? Which industrial sectors would we rely on – and how would these be promoted after Brexit? And the gorilla in the room: what happens to international wholesale financial services (aka the City) in the brave new world? It is easy to see both positives and negatives for the City – but how would these balance out? If there is one thing that makes other European nations exercised about Britain, it is the financial industry. Surely they wouldn’t hesitate to use a Brexit to make mischief?

There is also a quibble. He says that Britain should gain a net £10bn per annum in net contributions – though not straightaway. He says some of this will have to be spent on building capabilities that we have delegated to Brussels, such as trade negotiation and antitrust, but mostly it would be a gain. And yet he freely suggests the need for agricultural subsidies, and a host of inducements to entice in foreign direct investment (FDI). That £10bn is unlikely to last very long.

But that’s a detail. Three big problems stand out from this study. Has the British public signed up to economic liberalism and deregulation? Is the Brexit strategy trying to have its cake and eat it? And is it worth all that effort?

There is common belief on the right that Britons are a nation of freewheelers, and that the inveterate regulators in most other European countries are anathema. We are more like the Americans. Leaving aside whether Americans really are such freewheelers (you need a licence to be a hairdresser in many states), this is not well founded. Britons love to whinge about excessive regulation, to the extent that “Health & Safety” has negative connotations, but attempts at deregulation usually fail. Mr Mansfield wants a “Great Repeal Bill” to roll back and replace a host of product and labour regulations. That promises to be the mother of all political battles, and its outcome is bound to disappoint. Britons have as much affinity with Scandinavia as America – and you can’t move for regulations there, not least in Norway, which is not even in the EU. Indeed the sort of new Britain that many Tory Eurosceptics seek is a kind of right wing dystopia so far as most Britons are concerned.

More serious is the strategy for European trade that lies behind the Eurosceptic economic case. For all his thoughtful detail and realistic attitudes, this looks like a strategic flaw in Mr Mansfield’s strategy. The idea is that Britain gets free access to most European markets (he rightly suggests this would be unrealistic for agriculture, though); but that our industry will be more competitive because it can avoid large areas of regulation, especially for labour. And he takes this a step further, by suggesting that, with the help of some extra incentives like low tax rates, the country can retain its popularity as one of the top European countries for FDI – so that these incomers can export to the EU. This is known as having your cake and eating it. This strategy requires the cooperation of the county’s EU trading partners, who have a name for it: social dumping. And the fact that Britain imports more from Europe than it exports to it does not, in fact, give the country a strong negotiating position, as many Eurosceptics suggest. To his credit Mr Mansfield does not mention this last argument, and describes the British negotiating position as weak.

Which leads to the next problem. When you get into the detail of what has to be negotiated, Britain will end up giving concession after concession. Mr Mansfield suggests that half or even two thirds of the aquis communitaire (the body of EU laws and regulations) would have to be retained by Britain. The scope is massive. The overwhelming impression I get from reading this essay is the sheer size of what would have to be dealt with in a series of extremely tricky negotiations. All for what? Mr Mansfield estimates a range of impacts on the economy from -2.6% to +1.1%, with +0.1% as “most likely”. He observes that the case is more political than economic.

In only one area might the general public, as opposed to right-wing politicians, think that this might be worth it: ending the free movement of people, and especially labour. We would still need quite a free flow, but it would be easier to manage – and it would be easy to establish inferior rights for European immigrants. I suspect that the whole case for or against the EU will turn on this – and Europhiles badly need to sharpen up on the subject.

At the end Mr Mansfield refers to the examples of Canada and New Zealand as being successful countries in spite of being separate from nearby behemoths (the USA and Australia respectively). Interestingly another study on the benefits of EU membership, reviewed in this week’s Economist, uses a comparison with New Zealand to suggest that British incomes are 25% higher for having joined the EU in 1973. New Zealand’s economic record, in spite of (because of?) being a bit of test bed for economic liberalism, has been pretty underwhelming. It has recently being doing better courtesy of massive exports of agricultural products to China. Well New Zealand is a small country far away from anywhere – so comparing it with the UK is a stretch. But at least it has a decent export engine based on its natural resources (as does Canada with its mineral wealth). Britain’s oil is fading (and mostly Scottish anyway); it has been in agricultural deficit for a century; it is not an option to despoil swathes of countryside to dig out minerals for the Chinese market. We have the City, and lots of management consultants. Is this enough to build big export industry with the developing world?

In recent article, Vagueness is a danger for eurosceptic demagogues FT columnist Janan Ganesh pointed out that the Eurosceptic case tends to fall apart when Euroscpetics try to spell out exactly what they think exit it all means. Mr Mansfield’s interesting and refreshing essay cannot hide this truth.


Does money really grow on trees?

A few months ago David Cameron, the Prime Minister, defending the government’s austerity policy said that “Money doesn’t grow on trees!”, a well used expression when discussing household budgets. The Financial Times economics columnist Martin Wolf responded that money did indeed grow on trees, and the money tree went was the Bank of England. Can Mr Wolf be right?

Mr Wolf was referring to the Bank of England’s policy of buying government bonds, known as Quantitative Easing or QE. One arm of the government, the Treasury issues bonds to pay for government spending; another, the Bank of England, buys them by simply adding to its reserves – creating money. Actually, the Bank doesn’t buy the exact same bonds, it buys others that had been issued earlier – but it amounts to nearly the same thing. The extra money ends up in the accounts of major investors such as insurance companies or pension funds, at home and abroad. Government spending has been financed by the creation of money. Hence money seems to grow on trees.

This type of financing is associated in the public imagination with disaster – such as the hyperinflation in Germany and Austria after the First World War, or more recently in Zimbabwe. In conventional economic theory an increase in money supply, if not matched by expansion of the economy, leads to inflation. But there is no increase in inflation in either Britian or the USA, which are both practising QE, and in Japan, where increasing inflation is actually a policy objective of QE, the increase in inflation is anaemic. So what is going on?

There are three problems with the conventional economic theory of money. First is that only trivial amounts of money are represented by notes and coins, whose circulation is controlled by the government. Instead we use bank accounts provided by commercial banks. Economists have tried to understand this type of money in equivalent terms to notes and coins. People bank money and the banks then lend it; the banks do not create money, though the central bank may. But further reflection reveals that this is not the way it works, as the Bank of England has recently admitted. It is the other way round: banks create money by lending it to people. With this more realistic idea of what money is, we can see that far from the money supply expanding with QE, it is shrinking as banks reduce their balance sheets after the boom years when they created money freely. You could then argue that QE is simply offsetting the shrinkage of credit from the banks, balancing the whole thing out. All will be well until the banks turn the corner and start creating money again.

But there is a the second problem. The overall supply of money, as far as it can be measured, does not strongly correlate with either the size of the economy or inflation, as monetary theory predicts. That’s because money doesn’t flow round the system at a constant speed. If you print banknotes, and people simply stuff the new notes under the their mattresses, the real economy doesn’t change. The electronic equivalent is people holding bank deposits which they don’t spend. That’s been happening a lot. Standard monetary theory, such as that put forward by people like Milton Freidman, is based on the idea that money circulates at a reasonably constant speed. But in fact people don’t behave that way.

But even if they did, there’s the third problem. Excess monetary expenditure does not necessarily lead to inflation; in fact in a modern developed economy it rarely seems to. Instead of people raising consumption which pushes up consumer prices and then pay, people spend it on assets or imported goods. Asset prices don’t seem to behave in a rational way, being subject to a price bubbles. In the modern globalised economy it is easy to import goods to satisfy any increase in consumer demand. And in any case the link between consumer prices and levels of pay has been broken. The wage-price spiral, at the heart of the way economists view the world, does not seem to happen in developed, globally integrated economies. Incidentally this is the problem that the recent aggressive monetary expansion in Japan (“Abenomics”) has bumped into; prices are edging up but companies remain reluctant to let wages follow suit, so that inflation simply makes people poorer. The concept of central banks targeting inflation as their main objective, the big idea of the 1990s, has simply led to complacency.

So the theory of monetary economics is in ruins. That does not stop usually quite economically sane publications. like The Economist, discussing whether central banks should adjust their inflation targets from 2% to 3%, or use nominal GDP as their reference point instead of inflation. This is rearranging the deckchairs on the Titanic (apologies for the over-used metaphor). Fortunately central bank professionals are highly pragmatic and they don’t seem to be letting the vacuum in economic theory lead them into being too dangerous, with the possible exception of Japan.

And the upshot is that in many developed economies, including the British one, governments can get away with the monetary financing of government spending, without much in the way of immediate adverse consequences. Money really does grow on trees! How on earth to understand this – and any not so benign consequences?

Well you have to recognise that money is simply a means to an end: a social construct to enable economic activity and regulate societal relationships. It often helps when thinking about an economy to take the money away and see what is going on in what economists call the real economy.

Let’s look at the real economic flows, which are at the heart of Mr Wolf’s analysis. The government is consuming more resources than it is receiving from taxation. This deficit must be supported from outside (you can’t print money in the real economy), and in general terms this is from two places: the private sector and outside the economy. The private sector, as a whole, is consuming less resources than it is producing and this surplus, in various direct and indirect ways is helping to support the government deficit. This is partly because people are working off their debts, but also because private businesses are hanging on to profits. Also the economy (in Britain and the USA in particular) as a whole is in deficit with the outside world: importing more than it exports. The government can safely run, or even increase, its deficit because it is balanced by surpluses by the private sector and the outside world.

But this is not sustainable in the long term, because persistent deficits lead to excessive debts, and the monetary economy breaks back into the real one. If the  government has cleverly got out of financing its deficit with debt, it is simply passing on the affordability problem to somebody else. The assets being accumulated by the private sector and foreigners are not worth as much as they think. The government has avoided the risk of a solvency crisis by increasing the risk of a currency crisis or an asset price collapse. This may be localised, or it may be part of a gathering global financial crisis.

But if by running a deficit the government is staving off a wider economic disaster, or even bringing the country back to the path of economic growth, it is opting for a lesser evil. Mr Wolf argues for continued government deficits, financed by QE if necessary, on just these grounds. Austerity will simply precipitate the economic crisis rather than buying time to fend it off. He has a strong belief in a “trend rate” of economic growth of about 2% per annum which can be readily unlocked and get us out of jail.

That’s where I disagree. That trend rate may sound a small number, but it is in fact a very large one for an economy that is fully developed (China can grow faster because it is catching up). A special set of circumstances combined in the period 1945 to about 1990 or 2000 to make it seem normal – but we are in a slow growth world now.

So keeping government deficits going using QE to bypass the bond markets caries risks. The main priority for governments is to reduce their countries’ vulnerability to future crises and improve their resilience. That means rebalancing. Between public expenditure and tax; between rich and poor; between imports and exports; between financial engineering and productive investment; between young and old; between environmental degradation and restoration.

Government deficits may or may not play a role in this rebalancing process. For what it is worth I think the British  government has it more or less right in terms of its overall austerity policies. QE may or may not be helping. But any money plucked from trees will, to mix metaphors, go off if it isn’t spent wisely.




Why Labour are losing the election in 2015

According to press chatter, there is mounting worry amongst those that surround Ed Miliband, the leader of Britain’s Labour Party. I don’t know anybody in this elite circle, and I can’t offer an opinion on whether this is true. What I can say is that it should be. After ducking hard choices when the going was good, he is now in real trouble.

The immediate cause of the Labour wobble, if that is what it was, was the poll bounce for the Conservatives after the recent Budget by the Chancellor, George Osborne. The previously secure Labour lead simply vanished. This poll bounce disappeared as quickly as it came. Clever charts showing that it was part of a longer-term trend look premature. But it did show that Labour support is not solid, and that the Tories are not quite as terminally unpopular as many suggested.

But what really convinces me that Labour are in deep trouble is this exclusive piece in yesterday’s Independent, highlighting an article Mr Miliband had written for the paper. Here’s the first paragraph:

Ed Miliband has promised to rescue Britain’s struggling middle classes by boosting their living standards as he warns that the “cost-of-living crisis” will last for at least another five years.

This seems to be part of a bid by Mr Miliband to rebuild his electoral standing; today he is launching a policy about devolving more power to “super-City” regions, building on a policy developed by the Liberal Democrat leader Nick Clegg, as he will not say.

This political drive builds on two themes that Mr Miliband has been developing. The first is “the squeezed middle” – a deliberately vague reference to people who feel they are neither favoured by government handouts, nor part of the rich elite. It is interesting that this seems to have migrated to “the struggling middle classes”, when it might just as easily refer to working classes (if you get beyond the bureaucrats’ tendency to use the term “working class” to refer to people who are not working, and entitled to state support, as an alternative to the word “poor”). The second idea is “the cost of living crisis”, referring to the fact that for most people incomes have not increased as fast as prices over the course of the last government.

No doubt Labour’s polling shows that these ideas cover a large swathe of generally unhappy people, who might therefore be sceptical of the government’s record. The problem is how to appeal to them. Almost by definition, these people are out of the scope of state benefits. In fact they tend to resent the size of the state benefits bill, apart from the old age pension, whose cost they tend to underestimate. They are not employees of the state, a separate and distinct constituency, even if they share some of the same problems). So how to address their standard of living? There are two ways: tax cuts and a stronger private sector economy. On both counts Labour’s credibility is behind that of the Coalition.

The best sort of tax cut to reach the squeezed middle is a cut to personal allowances, i.e. the point at which people start to pay tax (including its National Insurance equivalent, something all parties seem happy to ignore). But the Coalition has already been increasing this quite aggressively, mainly at the expense of higher rate tax payers, some of whom are now claiming to be part of the squeezed middle too. Worse, it is one of the few policies that is closely identified by the public with the Liberal Democrat part of the coalition, which Labour is extremely keen to denigrate – they have picked up a lot of ex Lib Dem voters. They have floated the idea of a 10% tax band, which is just a less efficient way of delivering the same policy – and has uncomfortable echoes with one of the last Labour government’s policy mistakes.

There is an even bigger problem with taxes. Labour has to convince voters that it will not put taxes up to pay for an expanded state. That means signing up to a series of things, like a cap on benefits expenditure, that will be unpopular with core Labour voters, and not even particularly sensible from the point of view of economic management.

But tax cuts are a fairly minor palliative. What would really cheer voters up is the prospect of incomes rising in the private sector. The trouble is that Labour has done nothing to dispel its reputation for being anti-business. Quite the opposite. Mr Miliband’s view is that there are good businesses (“producers”) and bad ones (“predators”). Wages are being squeezed by the predators to benefit their top managers and shareholders. So his anti-business policies are directed at these predators (banks and energy companies to the fore), while helping the producers. This argument is not entirely without merit, but it is a tough sell. And in practice it is pretty much impossible to create policies that discriminate successfully between the two classes of business, and all those that inhabit the grey zones in between. The result is that Labour’s policies designed to address this problem, such as the devolution to the cities, don’t look as if they will deliver much of a boost to wages in the short term – even if they are perfectly sensible. And sensible policies are liable to get matched or pinched by the coalition parties anyway.

The Conservative counterattack to Labour will point to the fragility of the current economic recovery, and say “Don’t put all this at risk”. Of course one thing that could put the fragile recovery at risk is the Conservative plan for a referendum on the EU. But does Labour want to go out with all guns blazing on that issue? Perhaps I underestimate Mr Miliband, and that is his plan. But so far he is happy for Mr Clegg to take the lead on the issue. In fact you could not  inaccurately describe Labour’s emerging strategy as “I agree with Nick”. A liberal, centre-ground stance that wants more devolution from Westminster, but with a strong attachment to the EU.

So Labour is embarking on an impossible task to convince the electorate that it can out-do the coalition parties at their own policies. This won’t work. But what it will do is to de-motivate their core constituencies of public sector workers and the squeezed bottom, as I might call the voters suffering from benefits cuts.

The trouble is that Labour hoped to get the best of both worlds after Mr Miliband was elected. That they could adopt a “Blair-lite” strategy that allowed an appeal to the centre ground, while at the same time harnessing the wave of anger from their core voters at the government’s austerity policies, which, incidentally, allowed them to harvest a lot of Lib Dem voters. But Blair-lite lacked credibility as soon as the economy started to revive. There was a choice to be made for either Blair II, an unashamed dash for the middle ground, including an apology for the record of the last government’s economic policies (though that would have been too much for Mr Blair himself). Or they could have gone for unashamed social democracy, making a case for higher taxes, a bigger state, and less aggression on cutting the deficit (isn’t going for a balanced budget just willy-waving after all?).  The first of these two choices might well have destroyed the party, given the depth of anger over “The Cuts” – but the second choice was never properly debated or confronted. It would have been perfectly respectable and courageous – even if expanding the state back to the size it was in 2008, or even 2010, would have taken a very long time.

The Conservative General Election campaign has not got started yet. They will allow Ukip their moment of glory in this year’s Euro elections, then quietly mug their voters by stoking up fears of Labour. Labour’s credibility will fall apart, and they will have increasing trouble fending off Tory attacks and keeping their core supporters loyal.

If I was advising Ed Miliband, I would be worried.




Reinventing liberal economics

CooperIn a recent post I expressed frustration that conventional economics seems to have survived the meltdown of 2008 almost unscathed, as evidenced the chatter around the discussion of monetary policy. I mentioned one book, George Cooper’s Money, Blood and Revolution, that sought challenge it. On the strength of that the publisher sent me a review copy – and I have read it. It is interesting because the paradigm shift Mr Cooper advocates gives coherence to the idea of liberal economics, after its original conception turned out to mean libertarian economics.

Mr Cooper’s main thesis is that economics is a science that is in crisis (as opposed to the alternative view that it should not be considered scientific at all). He compares it to four specific cases of sciences in crisis: astronomy before Copernicus, anatomy before William Harvey established the principles of blood circulation, biology before Darwin/Wallace’s idea of evolution by natural selection; and geology before the acceptance of continental drift. Nearly a third of the book is devoted to developing this idea, before he gets to the discipline of economics itself.

The geology example is close to my heart. My father is a geologist, and I studied it at my first stint at university, at Cambridge in 1976-78 (I studied History in my final year – another story). My father had accepted the idea of continental drift – the notion that the continents are moving across the surface of the earth – by the 1960s, before the scientific establishment completely accepted it. By 1976 the idea of plate tectonics was conventional wisdom, and continental drift was treated as an obvious fact. What had made the difference (actually not mentioned by Mr Cooper) is that mapping of the ocean floor showed that the oceans were spreading, neatly illustrated by stripes of different magnetic polarity, following reversals in the earth’s magnetic field when the ocean crust was formed. It was new, killer evidence.  Mr Cooper rather suggests that it was looking at existing evidence in a new way that led to the revolution. But that is a minor quibble – there was growing opinion behind the continental drift idea before the oceanographic evidence emerged.

The book is not a heavy read. It is less than 200 pages and it goes at quite a clip. It is well written, apart from a couple of quibbles. He uses the word “experimental” in place of “empirical” for real-world evidence. Perhaps his publisher advised him it was more accessible, but in my book experimental means carrying out experiments. There is a branch of experimental economics, but it is tiny. Empirical evidence in economics is gleaned from examining the shape of the real world, only rarely with controlled studies – a bit like astronomy, geology and evolutionary biology, in fact. His use of “principle” when he means “principal” looks accidental but I counted two instances.

This lightness of touch has advantages and disadvantages. It will help him with general readers; it will leave professionals picking holes. His focus is on the former since he judges that the demand for a paradigm shift is likely to be strongest from those outside the discipline. But we still need people in the discipline to flesh out the new ideas.

Moving on from the idea of scientific revolutions, Mr Cooper then explores the state of current economics, describing all the main schools of thought, each with ideas incompatible with others. I found this section illuminating and enjoyable. He could perhaps have brought out more the capacity for professional economists to engage in double-think – for the same people to hold incompatible ideas in their own heads, never mind the presence of warring factions who look on the same facts in different ways.

But Mr Cooper rightly says that it is not enough to prove the existing ideas wrong; you have to replace them with new ideas that work better. He outlines a new system of thought, based on two new concepts: competition and circulation of wealth.

Economists have much to say about competition, but it turns out that what they mean by the word is an artificial, anaemic version of the concept, operating within tightly constrained rules, where the object is to maximise individual welfare. The real human competition that drives human behaviour is about survival and status; it is about getting ahead of the other guy and staying there. Crucially it is about relative position and not absolute wealth. If competitive behaviour dominates, then human society will tend to stratify into a feudal system with a hereditary elite maintaining its dominance by force. Since such feudal societies are very common, including in newly developed social systems like that of North Korea, it is clear that such competition often dominant. It undermines the idea of libertarianism, which advocates minimal government and regulation, since these last two are required to counteract the tendency to feudalism.

Cooper’s second idea, that of circulation, stems from the observation that feudal societies are economically inefficient (look at North Korea again). Once the ruling elite have secured their status, they hold the rest of society in a static position so as not to present a threat. Economies are drained of vitality because the poor have no spending money, and the elite tend to hoard their wealth rather than spread it around. Democratic societies, on the other hand, have developed institutions, like progressive taxation, universal welfare and so on that recycle wealth from the wealthy to the rest, and competitive elections that ensure that political elites are recycled too. This creates a productive tension. Competition gives people the motivation to build successful businesses (and political careers) and innovate; governments recycle the wealth thus generated to prevent it from stifling the system.

This is a very liberal view. The right sees only a limited role for government and taxes, and does not accept that the presence of a very wealthy elite stifles the wellbeing of society. The left thinks that competition is destructive and tries to stifle it through excessive government. Liberals understand that people must be free to compete, but that government institutions are required to prevent all the power accumulating to the wealthy.

What does that mean in policy terms? Mr Cooper is particularly critical of the idea of monetarism – the management of the economy through regulating money and credit in the economy as a whole. He thinks this idea is largely to blame for the crisis, and it won’t help us out of it. The extra spending power it creates goes to the wrong people, i.e. the very wealthy. They either let the new cash fester unspent, or use it to create an asset bubble. Spending power needs to go the other end of society, which means Keynesian stimulus, focusing especially on productive investment. This sounds quite sensible. I am personally deeply sceptical of monetarism, though I don’t take the argument quite as far as Mr Cooper does.

How to take this new paradigm forward? It is starting to happen. Politicians and economists are talking a lot more about the distribution of wealth; this needs to be put back at the heart of macroeconomics – as it was two centuries ago with the ideas of Thomas Malthus. The publication of and interest generated by Thomas Piketty’s Capital in the 21st Century is big step in the right direction. This adds a lot of flesh to the high level analysis, and may provide the first evidence of magnetic stripes on the ocean floor.

But there is a problem at the heart of economics which Mr Cooper barely considers, and which has to fixed. It is the public’s insatiable desire for economic forecasts, both to gauge the general economic weather, and to answer what-if scenarios (such as global warming). So far the only practical way of delivering these is through the use of neoclassical models using the ideas of independent, rational agents, optimising behaviour and equilibrium. The whole infrastructure of these ideas has to be taught to economics students to satisfy this demand. It is no use just saying that forecasting is going to be more difficult. If the discipline is to be regarded as a science, then new methods must be developed. I suspect that economics has much to learn from weather forecasting – another system that is never allowed to achieve equilibrium. Weather forecasts require very big computers which are able to model complex interactions between many component parts. Work is needed on something similar – massive multi-agent models, using insights into real human behaviour.

Beyond that, I would like to see ideas on human behaviour, such as tendencies to cooperation and competition, developed in a much more realistic and nuanced context, harnessing the disciplines of anthropology, sociology and psychology – replacing the rather crude Darwinism that Mr Cooper advances.

That said, liberals everywhere should take Mr Cooper’s ideas seriously.