Tuesday, 12 April 2011

Inflation by Nation

For much of last year UK inflation was substantially higher than in other analogous countries, the US being a prime example. This was obviously the subject of some debate as there were any number of possible causes involved and disentangling the ones which were unique to us, or which at least played out significantly differently with us was difficult. There were, in a sense two opposing views on this.

The first was perhaps the loudest, and that was stagflation; a return to high inflation and economic stagnation. Given the bad growth figures and loose monetary policy this was perhaps understandable, but then, loose monetary policy in and of itself is hardly a rare thing just now. Most evidence is that monetary policy is deceptive because aggregate lending took a huge dive since the initial crisis.

The other thought is that: the UK has devalued its currency competitively and UK employment remained higher than in the US by 2%, and for the first half of last year growth was still reasonable, and this allowed some price resilience in the face of a falloff in demand. This is after all the key point, this isn't an inflation question, it's an inflationary pressures vs deflationary pressures question. We're leaving, or struggling to leave a situation where credit levels were collapsing, unemployment surging and spending power declining, and none of those things actually support high prices.

With inflation dipping today, the Bank of England may feel vindicated in keeping rates low. After all, this is an early sign that inflation is not locked in, and that the resilience of the consumer in the face of higher prices is declining. We're now staring depressed aggregate demand in the face much more squarely. And the cuts have yet to really kick in.

Monday, 11 April 2011

Social Mobility - Aspirational Inevitability and A Cabinet Out of Reach

Class. It divides us, it unites us, it can even define us as individuals and in groups. It can at times be a national fixation, though no nation I know of has escaped it. And it is never far away from the political and economic news of the day, recently finding its framing in the form of social mobility, or the lack thereof in modern Britain.

I've always had a strange relationship with class: Two generations back my grandfather grew up in a village in India. He joined the army and some decades later my father-- born in the Seychelles-- arrived into this country with but a few pounds in his pocket. By the time I was old enough I was able to attend a good public school. Later this would all fall apart, and I would find myself in state education, sharing a room with my mother and brother. The long journey up was unknown to me, the abrupt descent was painfully apparent.

Those who go to public school are often imbued with a sense of what I might call aspirational inevitability; that if they want to do something there is little stopping them. When you leave that position prematurely you can sometimes feel as if you have been derailed, as though you are not sure if you will ever again enjoy that sense of power over your own destiny. It makes you conscious of something that might otherwise have been automatic: the way your background affects your expectations.

Poverty is a problem that blights societies. It presents feedbacks not readily tackled by piecemeal incremental policy approaches, it is path-dependent and self re-enforcing, and it has far reaching consequences which go beyond the readily apparent. Noone could dispute that poverty is one of the great challenges of western society. But is wealth and privilege a problem as well?

 Economic stratification occurs for many reasons. The poor have less security and are a greater risk, and so 'enjoy' a high rate of interest when accessing money-- if they can access it at all. Inevitably, they have fewer opportunities and face more difficult decisions when assessing the costs and benefits of investments in human, information and physical capital. They are likely to be mired in debt, forever paying out interest, while on the other side of the equation hoarded wealth generates dividends for the owner.

 It is harder to raise money, to continue an education, to move elsewhere to find work or just to stay ahead, and it is for this reason poverty is said to be a trap, and wealth an escalator to success. As the cycle of generations unfolds, poorer parents-- often faced with greater stress and less time-- are in many cases unable to give their children the time and encouragement they need.  The beginnings of social and cultural stratification are to be found here, but they do not end here.

In psychology the Halo effect is used to describe the phenomenon whereby salient characteristics can act as a prism through which we interpret other information about a particular person or thing; beautiful people are often unconsciously presumed to be more healthy, successful, even intelligent than the rest of us. Factors like these, innate to human psychology, influence how we assess ourselves and others, both individually and relative to others.  There are many studies outlining how we form group identities as well as how we discriminate based on race, gender or even football team. These groupings can go on to breed real division.

A person growing up in one group will instinctly draw on the language and common assumptions of those around them. They will identify with their group, and may try to elevate its perceived, even deriding other groups so as to feel affirmed in their affiliation. Perhaps more extreme, there is the so-called 'tall poppy' effect, where individuals from lower social groups discriminate against those who succeed or attempt to improve their position and similar effects can be observed in the other direction.

Consequently it is only natural that people draw on their social class in understanding their own position. They may even assume that they will not be able to do certain things because of their class, and this is not necessarily conscious. They may be unaware of why they feel this way, or behave as they do. The fact that they will lack many of the information resources that are open to others can amplify this (many people did not, and do not know about internships, though this is changing-- still more cannot afford to enter into an internship for free, which is why this issue is coming up now).

 Surveys conducted in the west have shown that US citizens are substantially more likely to believe that their ultimate success or failure is in their own hands, while Europeans are much more inclined to think their circumstances play the deciding role. This has some fairly significant implications for social policy: American politics is more focused on individual responsibility, and less on the context which may condemn or uplift any given person within society. It also means, however, that there is a far greater sense in the US that anyone can make it. Given the extreme economic inequality in that country, this may be the only way in which we can understand it to be a 'classless society'. Still, it is an important one. We do believe in addressing the causes of inequality in Britain (or at least talking about it), but we are perhaps also more in danger of this sense of powerlessness. It is important that the European virtue of 'solidarity' be combined with efforts to ensure that noone writes themselves off.

For these reasons-- although the socio-economic problems associated with social mobility are justifiably the focus of most discussions-- it is important to remember the psychological context as well. The difference in parlance and patois between social ranks creates disparate identities and ways of interacting which widen the gap and heighten the barriers, and the perception of different roles and capabilities associated with the different classes may inhibit aspirations for those further down the chain. The question is not always 'can person x do an unpaid internship', it is sometimes whether person x even considers it an option.

This post isn't intended to offer solutions to that-- after all, much if it is bound up in issues of conventional inequality-- but the reality that politics is today dominated by etonians and oxbridge educated elites is undeniably a problem in and of itself. It sends out a message which resonates in our collective unconcious; they can do it-- they are destined to do it, but we can't, we won't. The barriers are too great. The danger is not only that some have advantages that others do not enjoy, it is that the distance between what Eton represents and the rest of us must not feel so insurmountable that many simply never feel able to try at all. For if it does. inequality will not merely make us poorer, it will make us lesser as well.

Brief Post on StW Runciman Segment

Runciman discussed the difficulty of how western democracies deal with long term issues and crisis on Start the Week this morning, and (further to some perhaps ill advised in-the-moment tweets) I wanted to add some thoughts on the question, and to broaden the discussion.

In a representative democracy politicians decide on matters of law and policy, and a great many of these issues, though often important to society as a whole, are insufficiently evocative to capture public interest. The balance between 'mob rule' and a more aristocratic approach to policy decisions is decided by the degree to which it affects the public as a whole, how it is treated in the media, and how easily the issue can be distilled and argued on either side (or any of the many sides, in some cases).

Take climate change. It's far easier to deny climate change than to launch into a discussion of the science, at least without grossly simplifying it to the point that you leave yourself open to serious criticism. As a result, it is easy for climate denial to gain purchase with the public, and if two political parties staked out opposite positions on that, the party which favoured ignoring climate change would gain an advantage by taking it to the public, whereas the party which favoured tackling it would gain an advantage by keeping it within Westminster.

Now that's a simplification, of course, in reality although all major parties in Westminster favour tackling climate change on paper, the degree to which they're willing to invest time and money into doing so is subject to a large number of competing concerns, and the fact that they have not brought the debate to the public does not stop sections of the media from doing so, it merely depoliticises it.

Two further examples are instructive. The humans right discussion over votes for prisoners could be viewed at two levels, either as an argument for treating different kinds of prisoners differently, according to their offense, or as an emotive issue about rights for criminals, as opposed to victims. As long as this issue was public, and not parliamentary, anyone taking the latter approach had an easier time.

This is not to say that the public are stupid, but that they have what are called 'information costs'; they are busy and don't have time to do their own research, or fact check everything they read. Simple messages work, evocative messages work better.

Similarly on the deficit, whatever your opinion of the policy it is clear that deficit reduction is easy to explain. The line about the UK's "credit card", or about small businesses cutting back is an easy one to make, and resonates with the average person. Trying to explain macroeconomis in a liquidity trap is a far harder thing to do, and the Labour party has been relegated to attempting to turn spending multipliers into a soundbyte. Their best attempt so far has been: If gordon brown is to blame for our situation, presumably he's the reason the US, Ireland, Greece etc-- with all their varied circumstances-- find themselves in crisis.

In a crisis the salient issue *must* by definition concern the public, so the side which has the simplest case to make has an advantage, irrespective as to the virtues. For this reason, when crisis hits the debate must expand to a larger constituency as per Schattschneider, and how the system responds depends on what the problem is, how well educated and responsible the politicians are, and how the media operates. Effectively, the degree to which a western democracy is technocratic or 'mob-ruled' is a dynamic equilibrium, where changing conditions shift the balance between the public sphere and a closed environment.

Saturday, 9 April 2011

The Politics of AV

Let me start with a statement of position, all cards on the table. I am in favour of AV, I intend to help campaign with AV as soon as I am able. Nevertheless I do not feel confident about success. I've been watching the polls for months, and trying to guess at turnout, and I don't mind saying I've felt increasingly diffident since the start of the year, a wretched feeling greatly cemented by Caroline Flint's performance on Question Time this week.

Labour used to believe it would see political gains under AV, exchanging second preference votes with the liberal democrats, and helping to marshall anti-tory sentiment more generally.Things have changed. Since Nick Clegg made the AV referendum a non-negotiable position in last year's coalition agreement many of the left-leaning lib dems have fled to labour, and many of those who remain would support the tories by way of second preference-- even conservative voters seem closer to the lib dem orange book position.

The case for AV is a positive one, and as the maxim in law goes: He who asserts must prove. It is a change from the status quo, in some ways wounded by being a small change, in other ways represented as a dangerous experiment by opponents; most who might want change are underwhelmed by AV, and most others are easily put off by scare tactics. The No camp does not *need* to make a good argument, they can subsist on relatively frivolous arguments. And contradiction is no obstacle.

They can argue that it would help extremist parties *and* argue it would make parliament less representative, and amplify majorities. They can argue that it's a dangerous change, and that it's a miserable little compromise. And worst of all, of course, they can say things which are simply untrue, because few proponents of AV can masterfully convey the realities in a short space of time and in a commanding and convincing manner.

But the tendency of many in Labour to apply these same tactics has proven especially gut-wrenching. Undeniably, the tories stand to gain with the boundary changes, and labour (http://ukpollingreport.co.uk/blog/archives/3424) certainly may not benefit from AV, and given the sorts of frankly disingenuous arguments put forth by the likes of Flint, this is increasingly a transparently political issue.

There are many positions in politics which make me angry, arguments over economics and other issues which seem fatuous and invidious to me, but which I can at least believe may be genuinely held. I think we all experience that. Witnessing the labour contribution to the AV no campaign however has been an unpleasant and castigating experience for my inner idealist. And it is difficult to see how this can end well.

Ultimately, a great deal will be driven by turnout.

Wednesday, 6 April 2011

The Alternative Vote System - how many votes do you get?

Watching the AV referendum debate on The Daily Politics (courtesy of afneil) the most striking thing that came up was the question of whether some individuals get more than one vote, or if their vote 'counts more' under AV than it would otherwise. The implication is borderline invidious and given that the entire debate over AV concerns how it would affect the individual voter (it certainly is not proportional), it deserves a prompt disection.

The facts

In first past the post the majority candidate wins, outright, simple as that. Everyone gets one vote, and these votes are tallied to find out who has the most. This often generates so-called 'safe seats' where one party has a substantial advantage, and voters for other parties may feel their vote will make no difference. Major parties may ignore these areas, as they don't expect to change the outcome. In all areas of the country minor parties, which have no chance of winning seats and therefore affecting policy are routinely regarded as a waste of votes. This is the main reason that proponents of AV claim that under the existing system not all votes are equally important.

In an AV system there are different 'rounds'. In the first round the first preferences are counted, just like in FPTP, and if one candidate gets more than 50% of the vote, they are elected. The difference emerges if no candidate is able to achieve a simple majority, in which case a second round begins where the candidate with the least votes is removed, and the votes cast for them are given to each voter's second choice. If a candidate now has more than 50% of the vote, they win, if not the process continues. This is called an automatic run-off system.

In any given round under AV every voter has just one vote. Those who voted for a candidate who was eliminated change their vote to their second preference automatically, all other voters vote for their first preference, as before. In the final count, where one candidate receives over 50%, every voter is still voting once, but those whose first choice candidate was eliminated are forced to vote for someone they like less-- potentially allowing them to help avoid the choice they like least.

This is a solution to the 'transitivity problem'-- that by voting for the party you like most, you may inadvertantly help the party you like least. For this reason many people vote 'tactically' under first past the post, instead of voting for a party they most agree with, but which has no real chance of winning, they vote for the 'realistic' candidate that they most like, or least dislike. This makes FPTP a 'lesser of two evils' system at times, and this is the main problem AV actually seeks to fix.

This would lead to more votes to minority parties, especially the more popular minorities, including the lib dems, but also the green party. Parties like the BNP would also most likely get more votes. This leads to the claim that under AV voters who select the most extreme parties would get multiple 'choices'.

The Controversy


Most people agree that it would be healthy to remove tactical voting from the equation, but many are concerned about additional votes going to extreme parties like the BNP. This is partially legitimate; there are feedbacks involved. If a party is able to get more first preference votes, because of the reduction in tactical voting, they may find it easier to maintain a power base and to continue to grow.

However, they would still have an enormous fight in order to ever actually get more than 50% of the vote, AV wouldn't give seats to the BNP.

Another concern expressed in today's debate is that those who vote for parties like the BNP get a disproportionate amount of influence. This is not strictly true, their vote is wasted under the current system as it has no chance of affecting the outcome either nationally or regionally in most cases, unless it draws support from the main parties. Their vote would be more likely to be counted, yes, although the same is true of many other minor parties-- including the liberal democrats, who often suffered from tactical voting.

AV would lead politicians to court more diverse constituencies, however, groups like the BNP are minor in this, and have had this effect under FPTP in any case-- the immigration cap introduced by the coalition has been attacked by virtually all policy experts, and was widely seen as a reaction to the increasing concern about immigration, and the fear it might manifest in support for extreme parties. The benefit is that politicians would mostly be courting mainstream voters-- after all, a tory would rather have the second preference of lib dems, of whom there are many, than of BNP voters, of whom there are few.

Conclusions:


1) The first past the post system leaves us with a large number of 'safe' seats, seats where the party has a large enough majority that there is no serious electoral contest. AV would make these seats significant less safe by requiring candidates to get 50% of the vote to win.

2) AV would most likely not change the overall outcome of most elections, and might exagerate majorities. The main factor in the rise of coalition politics was an increase in the number of voters willing to go outside the main two parties, but AV affects results in both directions. (if labour and lib dem supporters were natural allies (this is in serious dispute currently) lib dems might help labour win elections via second preferences, and labour might equally help the lib dems, thereby helping the vote 'bloc' but not individual parties at the expense of each other)

3) AV would increase the number of votes cast for the smaller parties and decrease tactical voting.

4) Under AV voters who previously wasted their votes would have more influence on mainstream politics-- and this might exert a tug on the main political parties.

5) There might be an increase in voter participation if voters feel their vote is less likely to be wasted, and they have more choice.

6) Over a period of time smaller parties would find it easier to build up support, and this might-- or might not-- change the electoral landscape.

7) Under both FPTP and AV voters would be represented by a local MP, and this connection would exist whether or not they voted for them.

8) Protest votes are now less dangerous-- voters can register disenchantment with their first preference, by relegating them to second preference and voting for someone else, without the risk of helping to elect the party they least want.

If I'm missing anything really obvious out, and I bet I am, don't hesitate to eviscerate me.