The Chris Rennard affair: the limits of a legal system

Just when I thought things might be looking up a little for the Lib Dems, the Chris Rennard affair comes back with a vengeance. While my own views on the affair will become clear, I want to use this post to reflect on wider issues.

Lord Rennard (as he now is) was the party’s chief executive, and the ruthless leader of a number of highly successful by-election campaigns. The peak of his influence was under the leadership of Charles Kennedy and the 2005 General Election campaign. This was the party’s most successful campaign, marked by a manifesto that I personally thought was a disgrace: an unprincipled list of policies designed to appeal to floating voters. Still, successful politics requires ruthless campaigning, and we can’t wish away the dark arts.

However, it emerged recently that his conduct towards some of the party’s female candidates was open to question. Legally proved facts are in short supply here, but a number of complaints from highly credible sources emerged to the public glare a year ago. A police investigation resulted. That’s the first problem. Nothing that I had heard about the accusations suggested that it amounted to criminal behaviour. It was inappropriate by the party’s liberal values, but lots of different sorts of behaviour meet that description without being criminal. But as soon as, inevitably, the police found nothing they could proceed on, his defenders came forward to suggest that he was completely exonerated.

This, of course, is one of the oldest tricks in the dodgy operator’s handbook. How often do you hear of somebody claiming that they are “innocent of any wrongdoing”. Scratch the surface and “wrongdoing” turns out to mean “criminal behaviour  proved beyond a reasonable doubt”. There is, of course, plenty of doing of wrong that falls short of this. Ethics and the criminal code are different things, and lack of evidence is not proof that something did not happen. This is a real problem. Society sends out confusing signal to its citizens. I remember hearing on the radio of how school children in tough neighbourhoods get confusing messages. At school they are told that it is wrong to lie, that they should tell the truth for the greater good of all. But as soon as they get into trouble with the police, their legal adviser encourages them to lie like mad, or at the very least not cooperate. We do not honour people who take legal risks in the cause of truth; we just think that they are badly advised and a bit stupid.

Coming back to the Rennard affair, if we push past the deliberate obfuscation between criminal behaviour and inappropriate conduct, we are still in deep water. The party’s own adjudicator recommended that Lord Rennard apologise. This he has refused to do, citing “legal reasons”, though he has offered an expression of regret. The legal advice he seems to be getting is that any form of apology increases the risk of a civil case against him. I’m not sure just how true this really is, but it highlights a second problem for society: the excessive caution of legal advice. Ask a lawyer for advice as to how to behave and they will always err on the side of caution – advise you on what to do to minimise the risks of legal action against you. This is their job, after all. So they always advise against admitting any kind of guilt or apologising. This is corrosive to workings of a civilised society. That sort of advice is made to be disregarded at will.

A further defence (Lord Rennard has a lot of friends and defenders) is that he can’t apologise because he doesn’t know what he is supposed to apologise for. This is because the party’s report into the affair is confidential, and he hasn’t seen it in full. But it emerges that he has read the witness statements, which should be enough. So far as I am aware he was not instructed into exactly what his apology would say. You would think that a politician would be able to construct something that did not admit liability. This might well be regarded as inadequate by his accusers, but many are just looking for a face-saving way out. That usually means coming up with a formula that pleases nobody.

There is a more interesting and ethical argument that can be deployed to defend Lord Rennard. It is that you should not say things you do not mean, and that he genuinely does not feel that his behaviour warrants it. But given the liberal values he espouses, and the regret he has already expressed, surely there is sufficient ambiguity in his feelings to overcome such an objection? Of course, if he really can’t understand how his conduct was inappropriate then there is a bigger problem. Though, as ever, it is hard to know the extent that he is disputing the facts or the morality of his conduct. Our adversarial legal approach, where winning or losing matters more than the underlying logic of how you get to the result, does not help us get clarity on this.

There is another question posed by this affair, however, that does not reflect on Lord Rennard, but on his accusers. Why are they making such a fuss, and why now, so long after the events occurred? As I wrote when the affair originally broke, to a media frenzy, it is easy to detect some political ulterior motives. More deeply, is this part of a “victim culture”, where people are encouraged to blame their troubles on others, rather than trying to take control of their own fate? Some female critics of Lord Rennard’s accusers (I will not call them his defenders) seem to think so. Victim culture sells newspapers and does seem to be quite prominent – but it isn’t good for mental health, however justified it might look. This is a difficult issue though. It is not a good idea to ignore unacceptable behaviour. The more responsible journalists (like Radio 4’s Martha Kearney) have used to affair to discuss the whole issue of acceptable conduct at work – and that is surely a good thing.

We should not confuse right and wrong with the judicial process, and legal advice can cross the boundary into the unethical, and we should disregard it when it does. Slightly ambiguous apologies are one of the essential lubricants of social conduct. We should not ignore issues of wrongdoing, but we should know when to let go. This affair has gone on for too long; the longer it continues the worse it reflects on the main protagonists.

Inequality should be at the heart of the economic debate

Today the eminent US economist Larry Summers writes in the FT. His subject is the US economy, but the problem he addresses affects most developed economies in some shape or form, and the British economy quite closely. Unfortunately, so many economists of his generation, an obsession with short-term macroeconomic theory means that he doesn’t seem to get the big picture. Inequality lies at the heart of our economic malaise.

This debate is being conducted by academic economists in their own language, but it matters to all of us. I will summarise. Mr Summers’s starting proposition is that the US economy is suffering from “secular stagnation”. What this means is that the economy is stuck in a pattern of slow growth that does not fulfil the potential that population growth and advances in productivity should give it. This certainly seems to be true, though I think that the ability of developed economies to grow consistently at 2% per annum, the “trend rate”, must be subjected to critical analysis, rather than simply assuming it can be continued indefinitely because it has been achieved in the second half of the 2oth Century.

Mr Summers then says that there are three basic ways of trying to tackle this. First is “supply side” reforms; this means trying to fix fundamental bottlenecks in the economy, such as education. Worthy though he says these ideas are, the problem with this is that it does not fix a lack of demand in the economy; there is no point in producing more if nobody buys. This line of reasoning is very much behind the Keynesian critique of austerity economics. While there is a certain logic to it, it sounds too much like saying these problems are too much effort to fix, so let’s try something else – which is a road to nowhere. It used to be that economists blamed politicians for being too short-termist; now it is the other way around.

The second strategy is to loosen monetary policy. The problem is that monetary policy in the US (and the UK) is technically very loose as it is. I say technically, because in some respects monetary policy is quite tight in fact (because banks are reducing their balance sheets) – though there is little the authorities can do about it. Further loosening of policy (as advocated by the likes of Paul Krugman, for example) will simply inflate bubbles and get us back to the fix we found ourselves in 2007. He is surely right here – though I would add that I think that monetary policy is massively over-rated as a policy instrument by conventional economists anyway.

The third strategy is to use government spending to keep up demand, preferably by spending on infrastructure, that will be of long term benefit to the economy. He also says that governments should try to persuade the private sector to spend more, by which he mainly seems to mean the corporate sector to invest more.

The problem I have with this is its superficiality. The “secular stagnation” problem Mr Summers describes is a serious malfunction of the economic machine. This can be seen most clearly if you follow Mr Krugman’s logic. He says that the way out is to reduce interest rates to the point at which investment gets stimulated. And since interest rates are currently low, that means that we should have an effectively negative rate by stoking up inflation a bit. In other words, he is saying that the problem is that profitable investment is impossible, so we need to encourage investment that is marginally unprofitable. How on earth can an economy grow on that formula?

Surely we need to spend a bit more time getting to the bottom of exactly why are in this fix, and then trying to direct public policy to fixing it. Here I follow another prominent US economist: Joseph Stiglitz (or I think I do). The culprit for lack of demand in the economy is quite clear: it is lack of investment, especially from the private sector. You can make up for this shortage of investment by running government deficits, but you are in trouble if this is more than a temporary measure. The problem is that there is systemic reason for the shortage of private sector investment, which running government deficits does nothing to fix. It is rising inequality. Big surpluses are accumulating in some parts of the economy: in the personal wealth of the very rich, and on company balance sheets. This is not being spent on investment, but being held in cash to spend later, or chasing a merry go round of assets, real estate and shares, whose overall quantity is not expanding.

There are two problems here: inequality and the fact that savings are not translated into proper investments. The first of theses is the more fundamental. The Economist published an interesting article on the subject, reviewing the work of a French economist, Thomas Piketty. They point out that the inequality problem has been with us before: in the period up to 1914, giving rise to the critique of Karl Marx, amongst others. Mr Piketty thinks that developed economies are reverting to the 19th century type. The problem is slowing population growth, combined with technology that makes it easy to substitute people with machines. If he is right, the problem is not about to go away. It is the central political question of our time.

So what are the answers? First of all we need to tax the rich harder. Given that so much wealth ends up in slippery multinational networks, this means international cooperation. It also means rebalancing industry and jobs so that we are less over-supplied with unskilled workers. The pressure on the finance industry, especially investment banking, needs to be maintained. All this means reversing the conventional wisdom of the Ronald Reagan and Margaret Thatcher years – but not a recreation of the failed policies that preceded them.

This is an agenda of the left. It will be vigorously opposed by the right. Perhaps at long last the consensus that has ruled developed world politics will break up. But economists like Mr Summers do us no favours by concentrating on palliatives rather than solutions.

It’s going to be Gatwick

On Monday the Airports Commission, chaired by Lord Howard Davies, produced its interim report. The Commission was set up to make recommendations on the expansion of airports in and around London, which has become a politically vexed question. To most people, this complex question is viewed through a single dimension, such as whether or not Heathrow will be expanded. As a result, most of the commentary has been very shallow. To me its conclusion is obvious: it will recommend building another runway at Gatwick airport, and all the other airport expansion ideas will be put on ice for 20 years or so. And yet I haven’t seen a single commentator suggest this.

The Commission concluded that it would not be a good idea for us to make do with existing runways, though it denied taking a “predict and provide” approach. Various alternatives, including improving rail travel, or using airports elsewhere in Britain, were dismissed. In addition to a number of shorter-term measures, such as improving rail connectivity, it offered three credible options for adding a runway. Two were based at Heathrow, and one at Gatwick. A further, and much more radical, proposal to build a brand new airport on the Isle of Grain in Kent (“Boris Island” after its most prominent advocate, London’s Mayor Boris Johnson), was not ruled out, but, they said, it needed more analysis. This new airport would imply the closure of Heathrow Airport and, incidentally, London City airport.

So far as Heathrow advocates were concerned, this looked like a major victory, and most of the press seems to agree. The idea of building a third runway at Heathrow had been approved by the last Labour government, but both the Conservatives and the Liberal Democrats campaigned vigorously against it in West London. So when these two parties formed a coalition in 2010, they quickly ruled it out, with Labour toeing the line also, after doing badly in the west London area in the election. But the Heathrow advocates did not give up. They launched a sustained campaign that convinced many non-London MPs and journalists, so that it became almost conventional wisdom to suggest that the government’s policy of Heathrow was the height of folly. They secured the sacking of Putney’s MP Justine Greening as Minister of Transport, who had been vocally anti-Heathrow, as Putney is one of the areas badly affected by aircraft noise, from planes coming in to land (which are a constant background noise as I write this in nearby Battersea). They secured the set-up of the Airport commission, and now Heathrow is prominent amongst the potential solutions. This is remarkable progress indeed.

The Heathrow advocates have indeed secured an important victory over some of their opponents: and in particular those that suggested that London does not need a new runway at all, an important part of the anti-Heathrow coalition. They look to be ahead of the Boris Island advocates too; and indeed the obstacles to this radical plan look formidable. But almost unnoticed, the idea of a second runway at Gatwick is sneaking up on the inside.

Two important developments are bringing Gatwick into the picture. Firstly it has been taken away from the ownership of BAA, who also own Heathrow, and who are leading the Heathrow advocacy campaign, on competition grounds. BAA have never regarded Gatwick as their main priority, and would not advocate its expansion at Heathrow’s expense. The new owners. however, have given this airport new energy (it is already much improved). Secondly is the march of time. Gatwick is legally prevented from building a new runway before 2019; previously this had looked to be too far away into the future, but now it does not.

If that has put the option on the map, the Interim Report makes three major points in its favour. First is the most obvious. Many fewer people live nearby, and the airport’s expansion would blight many fewer lives. Second is quite a subtle one. It is that expanding Gatwick does not preclude any other options later. Expanding Heathrow would kill the Boris Island idea. Boris Island would kill Heathrow. I hadn’t appreciated this until I saw a table in the report explaining the impacts of the various proposals on each other; Gatwick’s was the only option with a complete set of green ticks. Expanding Gatwick postpones the existential battle between Heathrow and Boris Island, rather than killing one or other off forever.

But the third point is the most important one. The Commission has not bought the central argument of the Heathrow advocates, which is that the bigger the airport is, the more competitive it becomes. This idea is usually supported by graphs showing Heathrow in a life or death struggle for leadership with Charles de Gaulle near Paris, and Amsterdam’s Schipol. The emerging mega-airport in Dubai is spoken of in admiring terms, and the word “hub” is used with abandon. The Commission has spotted two weaknesses in this line of argument. First is that it is by no means clear that the hub model of airline travel (where passengers fly to a hub in a smaller plan and change up to a bigger one there) is actually the way of the future. The most successful airlines use a point to point model, and airliner technology is changing to make this easier. Second, there is no reason that the hubs for the world’s three main airline alliances need to be at the same airport, and that putting an extra runway into Gatwick would allow this airport to be a hub for one of these alliances, or even allow passenger to change planes in a do-it-yourself hub.

A further point is that the public transport links to Gatwick from central London are already good, and are likely to improve. They certainly compete with Heathrow’s, even though that airport is closer to the centre. Notwithstanding all the noise we get from planes landing at Heathrow, it is in fact much easier for us to get to Gatwick by train, for example – though by car would be different.

What tips the balance of the competing claims is the politics. Outsiders to west London don’t seem to understand how large the issue looms here. We (I’m no neutral in this) aren’t just fed up with the noise, being woken up at 5am on Sunday morning, and having visits to Richmond Park, Kew Gardens and countless other  outdoor venues blighted. We are fed up with the constant pressure on us exerted by BAA and its allies, trying to deny what we feel, and trying to push expansion past us a one small slice at a time. There is no trust. Feelings run deep, and their are a host of marginal constituencies for all three of the main political parties. Gatwick no doubt has its own political ramifications, but it has none of the same scale of toxicity. Gatwick is a get out of jail free card.

So, you read it here first. The next new runway for London’s airports, and the only one for the next 20 years or more, will be at Gatwick airport. Hooray!

Nick Clegg is right to aim for the centre ground

This morning I got a grumpy email from the Social Liberal Forum, a left-inclined pressure group within the Liberal Democrats. It complained about the apparent support the party is giving to the Conservative policy of aiming for a balanced budget, and so a continuing diet of austerity. It criticised this idea for being economically illiterate. It went on that the policy was

Cold comfort … to the people having to choose between heating their homes and eating this Winter, to those forced to go to foodbanks to feed themselves and their children, to families struggling with the cost of living crisis

They also criticised the party leadership aiming at a “mythical place known as “the Centre ground””, and of being closer to the Conservatives than Labour.

All this illustrates the disarray on the British left on economic policy following the unexpected turn for the better the economy has taken. Previously the left could unite around the proposition that the government’s austerity policy was “too far, too fast”, causing hardship amongst society’s least well off. They took immense comfort from the support of many Keynesian economic heavyweights, who said that, in the absence of growth, the state should disregard the government deficit and stimulate the economy to get it moving – or at least stop making the situation worse through cuts. Hence the government’s supporters being “economically illiterate”.  Yes they said, the government should tackle the deficit, but not until growth has been restored.

Though some might not realise it, that fox has been shot by the economic upturn. It isn’t that those economists were wrong, or that “too far, too fast” did not have economic validity at the time; it is that circumstances have changed. If the economy is growing, it is not a good idea to add further stimulus to it. And the “later” when the government should start to tackle the deficit issue has started to arrive. The awkward question that much government expenditure before the crisis was unsustainable, and would have to be cut in due course, cannot now be dodged.

In response the Labour party has changed the subject. Instead it is focusing on a “cost of living crisis” which they blame on badly behaving businesses, from energy companies to house builders. They are proposing a series of populist but economically naïve policies to change these companies’ behaviour. They appear to have no macroeconomic strategy, and the Shadow Chancellor, Ed Balls, is conspicuously floundering.

Politically, Labour’s strategy is interesting. Instead of following political conventional wisdom by chasing voters who float between the main parties (which is what is meant by the “Centre ground”) they seem to be chasing left-inclined or working class voters who will never vote Conservative, but who do not currently vote at all. Centrist voters are worried about the management of the economy, and seem to think that the Conservatives have the stronger case on that front. Instead of trying to reassure these voters by making it clear that they would continue with austerity policies to bring the deficit under control, they are chasing other voters.

What is even more interesting is that the Conservatives are also showing little interest in the Centre. Centre voters are worried about “fairness”, and the state of public services, where they trust Labour more. But instead of doing much to reassure voters here, they are stirring up headlines on immigration and the European Union, where they are proposing policies that are just as economically naïve as Labour’s. Again, quite apart from fighting off the populist challenge presented by Ukip, they seem so be after right inclined people who are not voting, but would never vote Labour if they did.

So if there is no serious contest for the Centre, and if both of the two bigger main parties are pursuing populist but foolish policies, there is surely an opportunity for the Liberal Democrats. Nick Clegg, their leader, is right to make a bid for this, which his party is doing with its “Stronger Economy, Fairer Society” slogan, which epitomises the centre ground. The critics within the party of this strategy are right to point out that this is not ideological secure space, and will do little to built the party’s weak core vote. But if the party is to hang on to its representation in Parliament it will need the support of floating voters.

And so to economic policy. George Osborne, the Conservative Chancellor, is wrong to make a fetish of budget balance – and perhaps deserves to be called economically illiterate to do so. But it is economically sensible to manage the public’s expectations on what the state can afford. It may be that some economists are right, and that a “trend rate” of economic growth of 2-3% per annum is there for the taking in the medium to long term, as everybody seemed to think before 2007. But there are good reasons to suppose that they are wrong, and that much slower growth is “the new normal”, once a bit of catch-up growth is over. If so we will have to get used to a much smaller state and a less generous benefit system. Floating voters sense this, and will not vote for the Liberal Democrats if they think that they might help the Labour party take risks by reversing austerity. Nick Clegg may or may not be economically illiterate, but he is surely right on that one.

Tesco is evil; Sainsbury’s is much better

As some of my readers will know, something over a year a go I suffered a heart attack. Not a particularly bad one, as these things go, but it required two stents in two sessions of keyhole surgery to clear the artery up. I am pretty much back to normal now, but the episode showed that I had a vulnerability. In particular I need to watch my diet and especially limit the amount of saturated fat I consume. So far this has proved successful, though to keep my “bad” cholesterol in the recommended zone takes a hefty dose of statins too. I have done this in large part by paying very close attention to food labels. This has given me new take on the intense competition between the retailing giants of Tesco and Sainsbury’s.

Using for labels to help manage diet is quite complicated, of course. But by a very long way the easiest method is to follow the advice of the British Heart Foundation (BHF), and look first and foremost at the intensity of the item: and that is measured in by the weight in every 100g of the product. All labels must carry this information somewhere. This idea is at the heart (as it were) of the traffic light system of food labelling. A low weight per 100g is green, a high weight is red, and amber is in between. You then need to make a judgement as how safe it is given the quantity. You save red for special treats or minute quantities; you are pretty free and easy with green. You treat amber with caution. Looking at the precise weights you can compare the virtues of one product against another. It’s not too difficult once you give it priority – which I do for saturated fats these days.

So you want to see is the traffic light colour quickly on the front of pack label. What would be ideal is to see weights per 100g on the same label when you want a closer look. Of all the supermarkets I use regularly (mainly Sainsbury’s and Tesco, but also Marks & Spencer and Waitrose), Sainsbury’s are, and have always been the clearest – though sadly they do not put the weights per 100g on the front of the packet. The traffic light label is particularly prominent and clear; the back of packet label with the fuller information (which I very often refer to as well, especially for amber products) is not hard to find.

Tesco is the opposite. They do have a front of packet label, but it is almost completely useless. It shows the weights for a unrealistically small portion size, and the % of recommended daily intake that this fictitious portion would be. There is no colour coding anywhere; you have to hunt out the tiny back of packet label and remember the green and red thresholds (the BHF provide a card to help with this). I think the idea is that the traffic light system penalises foods which you only consume in small quantities. But you are left with two problems: first is to work out how those percentages relate to your needs, which in many cases will have special dietary issues (saturated fats in my case) and where you might combine several elements into a single meal; and second you have to work out how your real portion relates to the theoretical one on the packet. Now if your diet consists mainly of ready meals (where the portion sizes are  realistic, and where all the elements have been brought together for you) I can see how you can turn this into a workable system for managing your intake. But this is not recommended for healthy eating, and any other way of eating is much easier work out using the traffic lights.

Frankly this is pretty obvious. And yet Tesco (and a few allies) have invested considerable PR resources into resisting the use of traffic light labelling and promoting their own, less workable system. The only possible explanation is that they want food labelling to fail in its aim of encouraging healthy eating, because they make more money that way. And that is evil.

Tesco has grown to be our biggest food retailer in the UK through a sort of conjuring trick: they give the impression of being very competitively priced, while producing consistently high profit margins. To shop in Tesco you are in a sort of fog of special offers, loss leaders and so on. They provide the data to make good decisions, but it is very hard work to use it to get tot he optimum result. Their attitude to food labelling seems symptomatic of their entire organisational culture.

Tesco are getting better. They have accepted a new food labelling standard which will show the traffic light colours (though I don’t think it is as clear as the Sainsbury’s system); they delayed this agreement with their corporate obfuscation, but they have not stopped it. Their margins are under pressure, and they are a bit less tricksy (I think). But their late conversion to higher ethical standards has come at a cost: people don’t trust them. Our local store is now a grimmer place to shop as they are being forced down market and reduce stocks of some of the more specialised things, like real coffee, that I like. Personally I wish I could avoid having to shop their, but our local store is so much more convenient than the other options that we end up buying about half our groceries there. It’s not growing on me.

Sainsbury’s has its own evil ways, doubtless. The fact that our nearest store is a much pleasanter place to shop than the local Tesco is as much down to the size of the store and local demographics as to the corporate style. But their exemplary approach to food labelling (ahead of Marks & Spencer and Waitrose, incidentally) gives them a lot of credit in my books. I trust them more than Tesco.

Labour can win in 2015. A disaster beckons in 2020.

Is it just me, or can I see a certain spring in the step of Britain’s national politicians? Ever since the party conference season last September they have been focusing on one thing above all: winning the General Election due in May 2015. The perplexing state of the country is now simply a source of ammunition to batter the other side. Actually solving the problems can be left until afterwards. What a relief!

The Labour leader, Ed Miliband, is having the better of it, if the relentlessly superficial media chatter is to be believed. This is quite a turnaround, since the same chatterers had him as toast as late as August. He has abandoned his party’s “too far, too fast” criticism of the government’s austerity policies, which helped rally the faithful (and rattle Lib Dem activists) but cut little ice with the country at large. The recovery of the country’s economic statistics has not invalidated their argument, but it has made it far too complex a proposition to argue, especially since their rhetoric had placed far too much reliance on these “flatlining” statistics in the first place. Instead they are focusing on living standards, and things, like fuel bills, which affect them.

From a campaigning perspective, this change of tack is astute on at least two counts. First, it appeals to direct personal experience, rather than the ephemeral world of economic statistics, to which the country’s GDP growth statistics belong. Second, it is such an intractable problem that the government is unlikely to be able to neutralise it. All that remains is to find some eye-catching policies to embarrass the government and keep the political debate on their ground. The centrepiece of this is the pledge to freeze energy prices for two years if Labour takes power, while they put in place a longer term fix to limit the damage inflicted by the greedy energy businesses they blame for the problem. A second push has been to enforce a “living wage” significantly higher than the legal minimum wage, through government procurement, and a tax break for employers who raise their wages.

In this line of attack Mr Miliband is the first of our national politicians to make political capital out of one of the most important developments in the British economy, along with many other developed economies, notably America’s. For the majority of people, wages are not keeping up with growth in the wider economy. In Britain this trend was clearly established, I read in this piece by Chris Giles in the FT, 2003/04; since 2010 (i.e. when the current government took over) wages have not even kept up with average prices. The benefits of growth are going to mainly to a privileged elite, while government interventions tend to be focused on the other end of the spectrum: the very poor. While the main economic issue is slow growth of pay, the main flashpoints are in taxes (especially for things like fuel) and energy costs.

There is, however, a snag. How on earth to actually fix it? This does not seem to bother Mr Miliband too much. His policy proposals are at best ineffectual, and at worst will actually make things worse. In the field of energy Britain is being overtaken by a crisis, as old nuclear and coal-fired power stations are shut down, and replaced by renewable energy sources that place wholly different strains on infrastructure. What the country badly needs is investment, in new capacity, and, especially, in distribution infrastructure (e.g. moves towards a “smart grid”). Just how Labour’s attack on the energy companies is going to solve this problem is, to say the least, unclear. And, if some of what I read is true, the pressure will break out into real problems in two or three years time. Labour’s living wage policies are no better thought through. Using government procurement to do heavy lifting in this area, along with many others, risks weighing it down with compliance costs – a process that tends to push out smaller businesses, as well as inviting scandal and fraud. The tax break looks totally unsustainable and an invitation to unscrupulous companies to manipulate the system.

The Conservatives are planning their counterattack. There is growing talk of 1992 (which this blog has long been banging on about), when a well-funded late campaign destroyed what had seemed to be an inevitable Labour victory. They will focus, probably, on frightening voters about the economy and taxes; their newspaper allies will concentrate on personal attacks on Mr Miliband to undermine his credibility as a prime minister. The Lib Dems are crafting a “centre ground” campaign, no doubt hoping to benefit from the damage the big parties will do to each other.

I have urged my readers not to underestimate the Conservatives. That advice still applies. But my current instinct is the Labour will weather the storm enough to form a minority government. That is when Mr Miliband’s problems will start. The country will face electricity shortages; clever schemes to enforce the living wage will unravel; living standards for the majority will stay under pressure; Labour activists and trade unionists will be on the government’s case to raise benefits and expenditure. The calamity that has struck Nick Clegg and the Lib Dems will visit Labour, for very similar reasons. I understand Labour’s strategy for winning in 2015; how on earth are they going to win in 2020?

The Great British Bake Off: a lesson in fairness and manners

This year’s Great British Bake Off ended last night. It was an immensely enjoyable show, and also very popular with the general public. Drawing wider lessons from such apparent trivia is a tricky business – but I was particularly concerned by this article by one of the contestants (Ruby Tandoh) in today’s Guardian. There has, apparently, been a lot of abusive comment in the press and on social media. What does this say about the state of British manners?

First let’s have the good news. The manners displayed in the contest itself were quite beautiful. In spite of the highly pressured atmosphere, and the obviously competitive nature of the activity, the contestants behaved wonderfully to each other. They actually seemed to like being together – bonding in response to the common task. This applied even to the comments made by the contestants without the others there. This is not always the case with these game shows (though we do not watch many of them), where rather silly competitive stuff often gets said. Nobody forgot that this was just a pointless contest about cakes and bread. This is all part of the charm of the programme, and clearly it helps make excellent viewing. This is welcome relief against the apparent conventional wisdom that bad manners make good viewing.

It is also worth pointing out that the judging was inevitably hard, but scrupulously fair. One of the judges, Mary Berry, being a particularly fine exemplar of good manners while at the same time passing difficult judgements. The other, Paul Hollywood, was less tactful, but never rude and always fair. This huge effort to be fair in the face of something very subjective also made for very good viewing. There are important social lessons there in a cynical world.

So what was the fuss about? Well I know about it mostly from Ms Tandoh’s article. My Facebook friends hardly talked about it, still less said anything inappropriate. I did pick up an article in The Daily Mail while I was on holiday last week though, claiming that Miss Tandoh should have been knocked out that week, but wasn’t because a tendency to burst into tears had affected the judges. We watched a recorded version of the show, which showed this accusation to be clearly nonsense. Apparently there was a lot more of this rubbish around. Miss Tandoh’s view is that it was largely misogynistic – responding to the fact that the final five contestants were all women.

What this clearly shows is that bad manners are rife on social media. That Britain’s awful press  pick up on this and stir it up further is entirely unsurprising. But people buy these papers and clearly like to read it. I can’t say for sure whether this means that standards of social behaviour are slipping, or whether social media is simply exposing behaviour that was previously concealed. I suspect the latter.

Regardless, it shows that the British public has a lot to learn about manners on social media. But it is rather wonderful to have a TV programme like the Bake Off to show how good manners can done in a thoroughly modern way, and that it brings with a feel-good factor with it. Miss Tandoh’s article is model of good manners itself. She has put her critics to shame.

Lies and statistics

This week The Economist has an interesting article, Unreliable research: trouble at the lab, on the worrying level of poor quality scientific research, and weak mechanisms for correcting mistakes. Recently a drug company, Amgen, tried to reproduce 53 key studies in cancer research, but could get the original results in six. This does not appear to be untypical in attempts to reproduce research findings. The Economist points to a number of aspects of this problem, such as the way in which scientific research is published. But of particular interest is how poorly understood is the logic of statistics, not only in the world at large, but in the scientific community. This is, of course, applies particularly to the economic and social science research so beloved of political policy think tanks.

One particular aspect of this is the significance of a concept generally known as “prior probability”, or just “prior” for short, in interpreting statistical results. This is how inherently likely or unlikely a hypothesis is considered to be, absent any new evidence. The article includes an illustrative example. Hypotheses are usually tested to a 95% confidence level (a can of worms in itself, but let’s leave that to one side). Common sense might suggest that this means that there only a 5% chance of a false positive result – i.e. that the hypothesis is incorrect in spite of experimental validation. But the lower the prior (i.e. less inherently probable), the higher the chance of a false positive (if a prior is zero, at the extreme, no positive experimental result would convince you, as any positive results would be false – the result of random effects). If the prior is 10% there is a 4.5% inherent probability of a false positive, compared to an 8% change of a true positive. So there is a 36% chance that any positive result is false (and, for completeness, a 97% chance that a negative result is truly negative). Very few

The problem is this: an alternative description of “low prior” is “interesting”. Most of the attention goes to results with low priors. So most of the experimental results people talk about are much less reliable than many people assume – even before other weaknesses in statistical method (such as false assumptions of data independence, for example) are taken into account. There is, in fact, a much better statistical method for dealing with the priors problem, called Bayesian inference. This explicitly recognises the prior, and uses the experimental data to update it to a “posterior”. So a positive experimental result would raise the prior, to something over 10% in the example depending on the data, while a negative one would reduce it. This would then form the basis for the next experiment.

But the prior is an inherently subjective concept, albeit one that becomes less subjective as the evidence mounts. The scientific establishment hates to make such subjective elements so explicit, so it is much happier to go through the logical contortions required by the standard statistical method (to accept or reject a null hypothesis up to a given confidence level). This method has now become holy writ, in spite of its manifest logical flaws. And , as the article makes clear, few people using the method actually seem to understand it, so errors of both method and interpretation are rife.

One example of the scope for mischief is interesting. The UN Global Committee on Climate Change presented its conclusion recently in a Bayesian format. It said that the probability of global warming induced by human activity had been raised from 90% to 95% (from memory). This is, of course, the most sensible way of presenting its conclusion. The day this was announced the BBC’s World at One radio news programme gave high prominence to somebody from a sceptical think tank. His first line of attack was that this conclusion was invalid because the standard statistical presentation was not used. In fact, if the standard statistical presentation is appropriate ever, it would be for the presentation of a single set of experimental results, and even that would conceal much about the thinness or otherwise of its conclusion. But the waters had been muddied; our interviewer, or anybody else, was unable to challenge this flawed line of argument.

Currently I am reading a book on UK educational policy (I’ll blog about it when I’m finished). I am struck about how much emphasis is being put on a very thin base of statistical evidence – and indeed how statistical analysis is being used on inappropriate questions. This seems par for the course in political policy research.

Philosophy and statistics should be part of very physical and social sciences curriculum, and politicians and journalists should bone up too. Better than that, scientists should bring subjectivity out into the open by the adoption of Bayesian statistical techniques.

One cheer for Ed Miliband

The focus of British politics is now clear. The prospects of the different parties at the General Election due in May 2015 dominates everything. No doubt it is with relief that the political elite and their coterie of journalists and commentators focus on this question, rather than the much more difficult one of how to make this country a better place for its citizens. The defining event of this year’s conference season so far has been Labour leader Ed Miliband’s speech. For good or ill, he seems to have set the political agenda. But does this tell us anything about whether Labour really would do a good job of running the country?

To read the commentaries, Mr Miliband has made a decisive shift to the left. He did this by focusing his ire on big business, and threatening them with government action. There were two signature policies. One was forcing energy companies to freeze their prices while the government reconfigured the regulatory regime to squeeze them more permanently. The second was forcing private sector developers to “use or lose” their land banks to build houses. All this in an attempt to reverse the decline in living standards that the bulk of the population has suffered since the economic downturn started in 2008.

Commentators of the right and centre, such as the Economist’s Bagehot column, interpret this as Labour vacating the decisive “centre ground” of politics, where elections are won and lost. This is the ground which the Liberal Democrats’ Nick Clegg is trying to push his party into, in spite of grumbles by older activists. The Conservatives’ David Cameron is likely to stake his claim there too, and ignore the voices of his party urging him to adopt right wing populism to fend off the threat from Ukip. They will attack Labour’s policies as unworkable, and part of a failed socialist outlook. Mr Cameron will offer tax cuts as a surer route to improving living standards; Mr Clegg will offer tax cuts too, though rather narrower ones, and something about tackling barriers to social mobility (affordable child care, better schools, etc.).

Commentators of the left, like the Guardian’s Jonathan Freedland, do not deny Mr Miliband’s leftward lurch and seem quite content. His new policies are popular with the public, and have lifted Labour’s poll ratings; there may be many more populist left wing policies, bashing bankers and big business that will go down well electorally. With a large chunk of the previous Lib Dem vote going to Labour, and the Conservatives struggling with Ukip, the next election is Labour’s to lose.

But rather than evaluate these calculations at face value, let’s pause and step back for a minute. All this looks like the narcissism of small differences. All three parties remain firmly embedded in much same policy space. Mr Miliband would have made a decisive step to the left if he had outlined a policy of increased public spending, funded by extra taxes. In this way he might be able to halt and even reverse the relentless squeeze on benefits and public services. But he has decided not to; instead his party will have to make something in the region of £26 billion of cuts in the next parliament (a number I have culled from this perceptive article by the Resolution Foundation’s Gavin Kelly in the paywalled FT). He has said nothing about where these cuts, or increased taxes, will fall. The Conservatives would be making a radical shift to the right if they were proposing to make deeper cuts to the state, which they can only do if they cut the NHS (or rather make the public pay for more of its services) and old age pensions. There is no sign of that.

And there is something else. None of the parties is embracing more than gradual or token decentralisation of power from Westminster. Instead they argue over this, that or the other centralised tax, subsidy or regulatory regime. This can be seen in the season’s signature policy ideas. Mr Clegg has announced free school meals for English school infants; all of them, everywhere, because it looks like a clever idea based on a couple of pilot schemes. Mr Miliband wants to bash energy companies through central regulation: but how does this help solve the country’s slow path to reducing carbon emissions? And what on earth is the point of the Conservatives’ tax break for married couples?

But Mr Miliband deserves credit for one thing. He, alone amongst the three party leaders that I can see, has pointed out one of the two central challenges of the British political economy. That is that the benefits of economic growth are bypassing most people. This is nothing new, but economic stagnation is making it hard to gloss over. It arises primarily from technological change, and its effect on manufacturing industry and office work, helped along by the rise of globalisation. The problem isn’t that our tax and benefit system is failing to redistribute wealth, it is that increasingly wages are too low in the first place.

But there Mr Miliband’s insight seems to end. He seems content to blame big “predator” corporations, and offer the hope that better regulation will help. He didn’t even mention the second great challenge, which is that real terms funding for public services and benefits will fall rather than rise in the years ahead. He offers palliatives rather than solutions. Britain’s right and centre are no better.

What is the solution? In my view there are three interrelated elements. Improve the education system so that skills better balance where the jobs are in future. Redesign public services and benefits so that they can be tailored to individual and community needs. Strengthen local networks to counterbalance the effect of the rise of centralised, winner takes all networks. These three require a radical decentralisation of power. How long will it take before our political classes start to realise this?

Are the Muslims right about debt?

The Biblical invocation against usury, making loans for interest, has been discarded by the two older Abrahamic religions, the Jews and the Christians, though it persists in Islam. I used to think the prohibition was another obsolete idea, based on a misunderstanding of the usefulness of finance. But as time goes by, the more I come to see that the biblical fathers, or God if you prefer, were on to something. The dysfunctional nature of financial markets is one of the modern world’s most pressing problems.

This reflection comes on the fifth anniversary of the collapse of Lehman Brothers, which was the point at which the current financial crisis broke out into the open. This has lead to a flurry of newspaper comment. I was most drawn to an article by Gillian Tett in the FT, covering a talk given by Adair Turner, the former head of Britain’s financial regulator, the FSA. Unfortunately this behind the FT paywall, and I cannot find coverage anywhere else. Lord Turner produced a blog, but this only covers part of the subject matter, and not the most interesting bit reported by Ms Tett. Lord Turner says that we have not really come to grips with the failure of financial markets that became evident with the Lehman episode.

The most eye-catching thing about financial markets, which is the main point made in the blog, is the explosion of private sector debt. In 1960, according to Lord Turner, household debt in the UK was just 15% of total income; by 2008 it has risen to 200%. If you start to add up loans made by financial institutions to each other, then even that figure looks pretty tame (837% according to this rather good Economist School’s Brief on the subject – though this suggests a little confusion in Lord Turner’s numbers on household debt). But the statistic that hit me most forcibly was the claim that only 15% of the money that flows into financial products actually gets invested in proper wealth-creating projects.

Macroeconomists have long been dismissive of the significance of debt and financial markets in their imperious declarations about the state of national and global economies. These are just means to an end, and they all cancel out – one person’s debt is another’s asset; what matters is the real world of what is produced and consumed. Economists are reluctantly having to rethink this, though most would still rather divert the discussion into conventional subjects about austerity and money supply. Lord Turner’s 15% statistic, however, should translate the issue into one which even an old-fashioned macroeconomist can understand. There is a massive gap between what people set aside to save, and what is actually invested. Financial markets are meant to be the channel by which savings are turned into investments – but instead they are simply a smokescreen hiding a black hole, as it were.

Let’s pause for breath, and look at the problem from another angle. One of the critical points of economics, too often forgotten, is that money and financial assets have no intrinsic value. They are simply useful tools by which we can coordinate the process of producing work and consuming its output. You can think of it as being a bit like electricity. You cannot store it. If people want work now, and consume later at leisure, the simple act of putting aside money won’t do the trick. You have to persuade other people to be around to do the work for you when you want to do your consumption. The wider purpose behind financial products is to help us to do this, to balance our over-production now (i.e. saving) with over-consumption later, or vice versa. Theses activities depend on coordination with people who want to do the opposite, and that is what financial markets are meant to do. How? Through investment. Investment is work that is done now to produce things that can be consumed later. This allows production without consumption in money terms to be balanced by a real world equivalent. Maynard Keynes’s great breakthrough was understanding that the failure of the money and real worlds to match was the main cause of recessions.

So if 85% of savings are not actually invested, there is a problem. Where does the money go? There seem to be two main places. Firstly a lot of it consumed by intermediaries – those fat-cat salaries included – to no real purpose. Secondly a lot of it goes into inflating the prices of assets, real estate or financial assets, that exist already. In other words it is a colossal waste of time which simply serves to make a lucky few rich. And meanwhile huge volumes of debt are being created, much of which can never be repaid. Or, to put it another way, we have manufactured vast banks of financial assets which are not worth anything like what we think.

This spells trouble ahead, as this situation will only resolve itself through, one way or another, debt being forgiven and assets written down. The owners of those assets show no sign that they understand this; or if they do, they simply assume that it is somebody else that will pay. Meanwhile the best we can do is not to make things worse. Amongst other things that means continuing to make life miserable for the banks and the financial sector, and hope that, as they shrink, they concentrate on the more socially useful aspects of it work.

What those old Jewish and Christian fathers understood, and Islamic scholars still understand, is that debt creates moral problems by dehumanising the relationship between debtor and creditor. Financial assets are in fact human relationships between real people, which we are attempting to abdicate responsibility for. Alas though, it is unthinkable that our current economic system, with its manifold benefits, can be created or sustained without them. But we would all be better off if we understood the moral and personal implications, and consequent limitations, of financial assets and the markets through which we acquire them.