I will be talking on the “great inequality debate” at 7pm at Cafe Mainstein in Berlin this coming Saturday. The discussion is in English and entrance is free.

The debate on the super-rich at the recent Battle of Ideas festival in London is now available to watch on video. Clink on the link here.

FT book review

29 Oct 2016

This is the text of my review of  The Market as God for the Financial Times. It was published on Friday 21 October.

 Just across the piazza from Milan’s magnificent Gothic cathedral, the Duomo di Milano, stands one of the first shopping malls in the world. The Galleria Vittorio Emanuele II, a temple of modern consumerism, was clearly built as a commercial replica of its venerable Catholic neighbour.

This uneasy contrast symbolises what Harvey Cox, an emeritus professor of divinity at Harvard, wants to explore in The Market as God. His goal is essentially to compare and contrast classical faith with what he refers to as “ersatz” religion. In his view, the market perspective bears all the characteristics of a traditional religion except it is constructed by human beings. He seeks to uncover the market theology, which he sees as comparable in scope, if not profundity, to traditional religion.

His interest in the subject was piqued when, on a friend’s advice, he started reading the business pages to help him understand the real world. To his surprise he found that the Financial Times’s lexicon (among others) “turned out to bear a striking resemblance to Genesis, the Epistle to the Romans and Saint Augustine’s City of God”.

Of course, he was not claiming that the financial press literally focuses on divine matters. Rather that the preoccupations of finance strangely parallel those of theology. Each of them has its own grand narrative about the inner meaning of human history. Theologians have their myths of origin, legends of the fall and doctrines of sin and redemption. Finance has similar concerns but in disguise: chronicles about the creation of wealth, the seductive temptation of over-regulation and salvation through the advent of free markets. Even entrepreneurs can, in his view, be seen as a secular version of saints.

Cox is at pains to emphasise that he is not opposed to the market itself. His objection is what he sees as its aspiration to divinity that has emerged over the past couple of centuries. It has become, in his view, a hubristic outlook that inspires wastefulness, cupidity and avarice.

Such criticisms are in line with two papal encyclicals (letters) that are approvingly cited by Cox at the start of the book. In 2013, inEvangelii Gaudium (the Joy of the Gospel) the newly elected Pope Francis criticised a “deified market” and “ideologies which defend the absolute autonomy of the marketplace”. Two years later, Laudato Si, the Pope addressed the growing planetary crisis brought about by climate change. Indeed, Cox dedicates his book to Pope Francis “with gratitude and hope”.

In principle, Cox’s project of examining the values and symbols of the market is a good one. It could help yield a better understanding of how the capitalist economy works.

Unfortunately, he makes a fundamental error that plagues countless critiques of the market system. He assumes that a confident pro-free market perspective is the dominant outlook. But even on a descriptive level, leaving aside any debate about the desirability of such a worldview, this is simply not true. Free market economics is not prevalent at the level of the workings of the market system or in relation to public discourse.

Despite the occasional flourishes of free market rhetoric the overwhelming reality even in the US is of huge state intervention. Government spending in the US is expected to amount to about 36 per cent of GDP this year, or $6.6tn, according to the International Monetary Fund. It is hard to square this reality with claims to the economy’s free market status.

On the level of ideas, pervasive doubts about the free market most often take the form of concerns about its alleged damaging effects. For example, the widespread idea that climate change represents a huge market failure, one that potentially threatens the future of humanity, is hardly a ringing endorsement of capitalism. Similarly, the often expressed concerns about the damaging effects of extreme inequality suggest a lack of confidence in the market system.

What Cox presents as a humane critique of the mainstream free market outlook is in fact an expression of the contemporary orthodoxy.

The Market as God

21 Oct 2016

The Financial Times has published my review of The Market as God by Harvey Cox. I will upload the text in the next few days but meanwhile here is the link. You may need to register (free) to read it.

Battle to commence

17 Oct 2016

A reminder that I will be debating inequality and the super-rich at the Battle of Ideas this Saturday. Come along to the session and indeed the whole weekend.

I am delighted to be speaking at the Battle of Ideas weekend at the Barbican Centre in London on 22 and 23 October 2016. On the Saturday I will be speaking on a panel on the super-rich and on the Sunday on the debate about social inequality. I will post more details at a later date. Alternatively you can check out the Battle of Ideas website. The whole festival is well worth attending.

Book recommendation

26 Jul 2016

Those who know German would do well to read Zeitgeisterjagd (Hunting the Zeitgeist) by Matthias Heitmann. The German author explores the dire consequences of the spirit of the times we live in. Risk aversion has infused public and private life to such an extent that we think of ourselves as unable to act upon the world. This ultimately renders us incapable of overcoming the challenges that face us. The result? We have become unfree.

The book was reviewed by Maren Thom in English on spiked in October 2015.

Readers in the UK can buy the book on Amazon here.

 

The following is a blog post I wrote on behavioural economics for the Institute of Economic Affairs website.

Anyone who has what might be called an instinct for freedom is likely to baulk at being dictated to by experts. A fundamental liberal principle is that individuals should have the autonomy to make their own decisions about how to run their own lives.

This insight goes back at least to the eighteenth century. Immanuel Kant, one of the greatest German philosophers, spelt it out in 1784 in an essay entitled Was ist Aufklärung? [What is Enlightenment?]: “If I have a book that thinks for me, a pastor who acts as my conscience, a physician who prescribes my diet, and so on – then I have no need to exert myself. I have no need to think, if only I can pay; others will take care of that disagreeable business for me.”

Overall the passage sounds strikingly contemporary. In the early twenty-first century we are plagued with self-proclaimed experts telling us how to do everything from eating healthily to parenting. The main difference with Kant’s day is that we do not have to pay for guidance from above, or at least not directly. We are bombarded with unsolicited advice.

However, there is a key clause in Kant’s comment that it is easy to miss. His argument hinges on the assumption that individuals are capable of thinking for themselves. But what if that premise is false? What if ordinary people, those who are not experts, are incapable of thinking rationally?

That is the starting point for the edifice of the burgeoning field of behavioural economics. Many of its proponents, such as Dan Ariely of Duke University, state bluntly that they view humans are irrational. The more sophisticated ones, such as Daniel Kahneman, a Nobel laureate at Princeton, talk more guardedly of ‘bounded rationality’. Either way the assumption is that the human thinking process is fundamentally flawed.

One way this argument is sometimes is expressed is the claim that humans are more like Homer Simpson than Mr Spock. Most people, in this view, are essentially idiotic and ignorant rather than logical calculating machines as epitomised by the Star Trek character. (Although fans of the science fiction franchise will know that Spock is actually torn between human emotion and Vulcan reason).

Whatever metaphor is used it should be clear that if the claim of irrationality is true it undermines one of the foundations of mainstream economics. From a behavioural perspective it is wrong to view consumers as primarily driven by rational considerations. From this premise it is a short step to explain financial crises and economic downturns as essentially bouts of irrationality. The conclusion normally drawn is that experts should play a central role in directing economic activity.

It is important to recognise that such claims should not be rejected simply because they lead to objectionable conclusions. If the assumption of irrationality is true then, whether we like it or not, it should be accepted. The key question is whether it is indeed correct. There are at least three reasons to question it.

First, the claim of irrationality is often based on a caricature of orthodox economics. Even the most ardent mainstream economists do not generally claim that humans always act as perfect robotic calculators. People do not systematically weigh up the costs and benefits of every minute decision they ever make.

In reality, the mainstream claim is that an assumption of a broad rationality should be the starting point for building a model of how the economy works. It does not preclude people from ever feeling emotions, making mistakes or miscalculating on the spur of the moment. Moreover, outside the economic sphere, say in relation to love or family life, people often make decisions on grounds other than economic rationality.

It is also common for behaviouralists to assert irrationality rather than to prove it. For example, in a BBC Horizondocumentary Daniel Kahneman, the Nobel laureate, gave the working habits of New York taxi drivers as an example of irrational behaviour. His claim was that everyone wants taxis on rainy days but on sunny days fares are hard to find. So, he argued, taxi drivers should logically spend lots of time driving on rainy days when it is easy to find passengers. Sunny days, when there are fewer passengers around, are the best time for drivers to take time off. But in reality many drivers do the opposite. They work long hours on slow sunny days while knocking off early when it is rainy and busy. Rather than thinking about how best to maximise their income they simply aim to earn a set amount every day. Once they hit their target they go home.

Anyone who takes the trouble to talk to taxi drivers or even to think about the question will realise things are not so simple. Some drivers say that, contrary to Kahneman’s claim, there can be fewer people around when it is raining. For example, a potential passenger who is thinking of going out for a meal might decide to eat at home instead if the weather is wet. Other drivers claim that passengers tend to want to go on less lucrative shorter journeys, rather than long trips, when it is raining.

It is also likely that many drivers have set expenses to pay, whether it is for food or housing, every week. To be sure of meeting their commitments they may need to drive whatever the weather. On a sunny day they may decide they cannot afford to risk waiting for more lucrative rainy days to come along. The weather itself is uncertain.

In such cases there is probably no perfect solution which is right in all circumstances. It is likely the correct answer will vary according to particular local conditions and individual needs. The key point is that it is wrong to simply assume that taxi drivers who work long hours in sunny weather are behaving irrationally. They may have rational reasons for driving when they do. Indeed they are likely to know a great deal more about how they run their own lives than even the most eminent professor.

Finally, the claim that economic downturns can simply be explained as bouts of irrational behaviour is crass. Such arguments tend to be based on simplistic assumptions. Often financial turmoil is treated as more-or-less synonymous with trouble in the real economy when the relationship between the two is complex.

In addition, it is wrong to see economies as mere collections of individual consumers. Modern economies are complex entities with large numbers of producers as well as consumers. Understanding weaknesses on the productive side of the economy involves examining such factors as low levels of business investment and profitability. The difficulties economies face demand careful examination rather than assertions that they are manifestations of market madness.

Indeed it is a rich irony that it is often experts, who in many cases are sympathetic to behavioural economics, who have exacerbated economic problems. For instance, there is a reasonable case that some central banks contributed to the 2008-9 financial crisis by pursuing an overly loose monetary policy beforehand. Low interest rates contributed to the creation of the financial bubble before the market crash. And, this leads to a fundamental issue. Those who use behaviourial economics often suggest that it implies a greater role for regulators or the state to “nudge” us in the right direction. But, are not regulators subject to behaviourial biases too? Perhaps, for example, they systematically over-estimate their ability to perfect markets.

Behavioural economics should be seen as part of a broader assault on reason that goes back to at least the nineteenth century. It attacks the primary liberal value of individual freedom on the spurious grounds that people are incapable of thinking clearly for themselves. On this basis is opens the way for both illiberal policy conclusions and flawed economics.

Think Conference

28 Jun 2016

Delighted to be talking on two panels at the Think Confererence in London this coming weekend. Do come along if you can.

This is the original (unedited) version of my latest book review for the Financial Times.

Although Yuval Levin is a self-avowed conservative he takes aim at both sides of the US political divide in this perceptive work. The former White House staffer under President George W Bush sees both progressives and conservatives as wallowing in an unhealthy nostalgia. The Fractured Republic argues eloquently that striving for a better future means desisting from romanticising the past.

Republicans, in Levin’s view, tend to hark back to 1981. In the first full year of the Ronald Reagan presidency the conservative president set about implementing free market reforms in earnest.

The nostalgia of the Democrats, in contrast, harks back to the Great Society of 1965. That was the high point of the campaign against poverty and racial injustice implemented by the administration of Lyndon B Johnson.

Neither side, Levin argues, has the answer to the most contemporary problems in the US. The left is too wedded to statism and the right too often favours a hyper-individualism. Neither, in his view, is up to the tackling the central challenge of America’s fractured society. Both social order and economic security have been weakened. A dysfunctional political system is ill-equipped to tackle these problems.

Many leading American thinkers share Levin’s preoccupation with acute social divisions although each has their own particular take on it. Robert Putnam, a Harvard academic, has bemoaned the decline of social capital in US society. Bill Bishop, a prominent journalist, has used demographic data to show Americans increasingly choose to live with like-minded neighbours. Charles Murray, a conservative thinker, has bemoaned how a powerful upper class has separated itself from the rest of society.

For Democrats, and those who more generally define themselves as progressive, economic inequality is generally central to this concern. They criticise an ostentatious super-rich for separating itself from the rest of society.

Levin accepts that high inequality is a reality but is surely right to argue that it is an effect rather than a cause. The wealthy, for instance, have benefitted from the booming of the financial sector and financial assets over the years. But to see this trend as the main reason for America’s fracturing is misleading.

Conservatives also identify a growing social divide but they tend to see it more in moral terms. Levin is influenced by Charles Murray’s argument on the growing gap between those with a university education and those without. It is perhaps not surprising that college graduates suffer lower unemployment. But they also tend to have significantly higher marriage rates, lower divorce rates and more religious commitment. For the right, cultural disintegration and polarisation, rather than economic inequality, are the key concerns.

Although Levin is critical of both conservatives and progressives he argues that the right is better able to come up with a solutions. His solution is a reinvigoration of what he calls mediating institutions in society: a strengthening of community life. As a self-professed conservative it is not surprising that he sees the family as playing a central role in achieving this task. But he also argues for increased importance to be attached to liberal education (as opposed to vocational learning) and greater civic engagement. Above all he emphasises the importance of religious institutions as he sees these as a direct challenge to the age of fracture.

This emphasis on mediating institutions is in line with his support for what he calls a modernised politics of subsidiarity. That is the idea that key decisions should be made as close to the community level as reasonably possible.

Despite the many insights in Levin’s work there are good reasons to call some of his key insights into questions. For example, there is a lot of emphasis on institutions but much less on the ideas needed to develop a common outlook.

It is also arguable that the widespread concern about inequality is driven by factors other than economic ones. At least in part it seems to reflect an insecurity within the elite itself. It no longer has confidence in its own ability to cohere society.

Nevertheless the Fractured Republic should be require reading for all those trying to understand the contemporary US.