Tag Archives: sceptical economist

Words of advice from a sceptical economist to any aspiring politician

No politician has requested my advice but as so many people particularly journalists proffer uninvited advice, I feel free to offer my own. Sceptics have a special duty to offer advice as they stand apart from the common run of intellectuals who are always promoting their own ideologies and schemes, as we offer a warning as to the traps into which a politician can fall.

Any politician when entering the great Houses of Parliament or the chambers of the other legislatures will be in awe of the senior practitioners of the craft of politics who display a mastery of the chamber. This mastery only extends as far as the boundaries of the legislature. In Britain it is acknowledged that George Osborne (Chancellor of the Exchequer) is the master of the house, he dominates debates and sets the agenda for policy making. However this does not mean that this mastery is any more than a dominance of the members of the house,he like many masters of the politic art achieves his dominance through his avoidance of any of the intractable problems that face the country. The palace politics of Westminster and other chambers is dominated by series Ozymandias who pretend to a control of events that they in reality lack.

Ozymandias image taken from blogspot
Ozymandias image taken from blogspot

The sceptic’s duty is to remind the politician that they don’t know and not to be taken in by the many Ozymandias that dominate parliament, who show their ignorance. Greek sceptics such as Sextus Empiricus were the philosophers who claimed that the philosophies of Plato, Aristotle and Zeno were unsound and did not embody the universal truths their adherents claimed. Rather than trust to a new unproven truth of a philosopher they recommended that the people stick to the tried and tested ways of their ancestors. A contemporary sceptic such as myself would amend the original sceptic philosophy to say that all philosophies and ideologies while not containing within themselves the ‘big answer’ to life and society’s problems, do contain many partial and useful truths. It is the task of the sceptic to suggest methods by which the few partial small truths can be disinterred from the big lies contained within political ideologies and philosophies.

Sextus Empiricus Greek philosopher of scepticism a source of inspiration to the author
Sextus Empiricus Greek philosopher of scepticism a source of inspiration to the author

If the Neo-Liberal or free market philosophy that dominates political discourse really contained the big truth and not the big lie, Neo-Liberal Britain would be a prosperous and happy nation. Instead it is a nation in which there is much social division, great income inequality and much poverty. One ill is the dysfunctional housing market, a market which is making London uninhabitable for middle and low income families. Yet even within this malign philosophy there are valuable truths, which can guide good policy making. One truth is that the government cannot fine tune a complex mechanism such as the market to achieve such ends as full employment without there being adverse consequences, such as increasing inflation pressures in the economy. The big lie of Neo-Liberalism is that because the markets are so complex and incapable of being fully understood by politicians they are best left unregulated, which can result in powerful market players abusing their power to the detriment of others. Powerful players such as the landlord who can exploit their monopoly of the housing stock to force tenants to pay exorbitant rents that can equal half of the tenants income. It is the role of the politician to choose a middle position between over intervention and non-intervention to deliver legislation and policy changes that benefit the community as whole.

In today reform obsessed society it is easier to identity problems with any existing government policy or public service organisation and even easier to suggest reforms. However these reforms are unproven and are usually rushed into operation without any real consideration of their impact on society. What appears to be broken and dysfunctional may be less broken than the reformers suggest and often delivers a better service than the organisation that exists after their reforms.

Perhaps the example of the private finance market most clearly demonstrates this point. The banks and members of the financial services complained that the restrictions under which they operated in the 1950s and 60s hampered them when competing with their international rivals. What the banks complained of bitterly was the way in which the government restricted their ability to create credit (money) , the government would compel banks to limit their mortgage lending to avoid an inflationary increase in house prices. They complained that their foreign rivals were not subject to such restrictions and were able to take business that would have otherwise been that of the British banks, although there was little evidence of this happening then. A more telling example could be found in the Stock Exchange, there was an individual called ‘the government broker’,who dealt exclusively in the buying and selling of government stocks. In the morning he dealt with customers on the phone and in the afternoon he donned a top hat and morning suit and went to the stock exchange were he would conduct government business from his stand. Bankers and other financiers looked at the American financial market with its corporate giants and wanted the same freedom to practise free of regulation. In 1986 the government obliged and removed all restrictions on the financial markets in the so called ‘big bang’. Businesses merged and grew and new mega giants came to dominate the financial world. However this legislative free-for-all had a down side, with no restraints on bad behaviour either legislative or cultural the worst happened. One consequence was one financial crash after another. Lloyds Insurance market which was once the byword in financial probity crashed because of the reckless and sometimes fraudulent behaviour it’s the underwriters. Seemingly sound banks got into trouble over reckless speculation, one of the first to go was National Westminster which lost billions on foolish American purchases. It was only saved by being purchased by the Royal Bank of Scotland. Then there were the series of bank failures in the crash of 2008/9, in which the banks were only saved from collapse by government money and guarantees totalling about 10% of GDP.

What appeared in 1986 to be a cosy gentleman’s club was in fact an efficient financial system that worked, it only fault was that it did not enable its members to earn the mega bucks of the American investment bankers. This market had evolved since the 18th century from coffee houses and financial exchanges and developed a series of working practices that protected and benefitted the customers of the financial sector. The relatively small size of the members of the market meant that the collapse of one did not equate to a financial catastrophe, as it did not as today bring down with it with it the other over indebted giants of the market. When a series of fringe banks crashed in 1973, they were easily absorbed by the larger banks and their customers suffered no real loss. The separation in the Stock Exchange of the role of broker and stock jobber had prevented the manipulation of shares to the detriment of the customer. Now with the merger of the two roles there is frequent evidence of insider trading and share manipulation by the banks which are to the detriment of the customer. There was the infamous Goldman Sachs case in which company emails revealed that the bank had sold ‘crap’ shares to their customers, whose sale benefitted only the Goldman Sachs traders. The overnight scrapping of the old established practices in 1986 which ensured the probity and soundness of the financial markets, created a market in which the reverse is true and which is prone to sudden and catastrophic breakdowns. A market which is so dysfunctional that it can only continue to exist through the continued explicit and implicit guarantees of government support which will compensate all in the event of a crash.

As a sceptic I am tempted to say that all reform is misguided, but that is wrong as society is constantly changing as governments have to adapt policy to changed circumstances. What I as a sceptic say is wrong is the belief that only ‘big bang’ reforms or those starting from ‘ground zero’ assumptions are wrong, it is the nature of reform that is wrong not reform or change itself.

Only if a politician understands the character of the reformer will they be able to judge the value of any proposed reform. All reformers are either ‘missionaries’ or ‘salesmen’ which is why such bad judges of the reforms they suggest. Once that is understood many proposed reforms can be seen as unsound, as they self interested proposals that only benefit the ‘missionary’ who have their sense of being the prophet that saves society from itself confirmed or the salesman who gets a cash benefit from the successful promotion of a reform.

The reforming Neo-Liberal economists are missionaries, they are on a mission to save society. These missionaries will always claim adopting their methods will result in some desired end. In the 1960s they were campaigning for an end to government policies that ensured full employment, they argued that allowing unemployment to increase to its natural level would reduce inflation. In the 1970s they argued for an end to the managed exchange rate system which they claimed would lead to an ending of international financial crises (history soon demonstrated the fallacy of this claim). Then in the 1980s that introducing the free market into the public services would reduce their cost and improve their effectiveness (as a rail user I and many others would dispute this claim). I compare them to the Jehovah’s Witnesses, who claim that only by adopting your religion will you get to heaven, the Jehovah Witnesses among the political reformers claim that only by adopting their practice and method will the best of all possible societies be attained. What they also have in common is that both their claims are faith and not evidence based.

The best example of the salesman type of reformer are the financiers of the City of London who argued successfully for the removal of all restrictions from the financial services. They as with the successful salesman gained an increase in income from the sale of their ideas. Obviously salesman are most frequent type amongst the financiers who recommend the privatisation of various government services. These financiers will gain from the consultancy fees from advising on the sale of a public service or as in the case of Royal Mail from handling the resale of its assets. (The financial advisors were guaranteed a proportion of shares in the newly privatised Royal Mail at a price they suggested. They were then able to sell the shares they had acquired at a much higher price making a large profit.)

From the viewpoint of this sceptical economist all proposers of reform should be regarded with extreme scepticism. Those reforms proposed by the missionary or the salesman are particularly suspect.The motives of any reformer should be treated with scepticism as it is more than likely the proposed reform includes a strong element of self interest.

One final word of advice the reforms that a politician proposes to introduce will inevitably be wrong, in that it will disadvantage one group in society. The role of the politician is to choose the least wrong of all possible options, the one that will wreak the least damage on society. Hopefully the reform may even produce more benefits than injuries, although recent policy measures in Britain have tended to damage rather than mend the social fabric.

Public servants and their inefficient ways

Society has always needed scape goats for its many failures, it makes it easier if one can identify a person or group responsible for these failures, it avoids any difficult soul searching into the real cause of the problem. Usually these scapegoats are from an ethnic minority, it was only 50 years ago that boarding houses would have notices stating that the Irish were not welcome. Since that time new scapegoats have appeared usually from the new immigrants at one time is was Afro Caribbean’s who were blamed for the increase in crime in the 1980s, a role they have now vacated, which is filled by Eastern Europeans. However what is unusual is the addition of an occupational group to this list of scapegoats, that is the public servant. We are blamed for the lack of dynamism in society or as it is more usually termed economic growth. Public servants either through their adherence to bureaucrat practices make change so or impossible or they just syphon off tax revenues to little productive purpose.  
The outing of this parasitic group that feeds off the life blood of the economy was the work of the American public choice theorists. They highlighted our bad work practices, in the words of Charles Murray the public servants solution to a problem was always the same, to ask for more money to create a new department to deal with the solution and promote themselves to run this department. All that motivates us is the opportunity to increase our own status and incomes. Job security means that we don’t have to respond to public demand. Our customers the public lack any sanction to compel us to perform better. The solution is to break up these public sector monopolies into competing businesses that are forced to compete for the public’s custom if they are to survive. 
These theorists confirmed what society had always thought that we were a group of jobsworths who were only interested in feathering our own nests who provided the public with an abysmal service in return for our inflated incomes and job security. This is such an obvious truth that journalists such as Simon Jenkins can state with certainty that the education, health, legal and defence systems waste public money on a vast scale and that profligacy with public money produces little of value. It is such an obvious truth that he does not have to produce any facts or figures to prove his assertion, everybody knows that he is right.
Governments have long been persuaded of the truths of public choice theory, so much so that they have contracted out, wherever possible services to the private sector. Where services have remained in the public sector, they have created large external costly bureaucracies, whose only task is to ensure that public sector workers do their job, according to the principles of the free market. These inspectorates have names such as, the Care Quality Commission and their sole role is to police public sector workers. Neither the government or the advocates of public choice theory see the irony of having to introduce a large and costly bureaucracy to ensure that the public sector now works according to the principles of the free market. Public servants instead of experiencing the freedoms of the so called free market are in fact part of a new ‘Big Brother’ society. Winston Smith’s world is that of the new public sector.
Given that public choice theory teaches that public servants are only self interested of individuals who have little interest in serving the people the new inspectorate and public sector managers have to be vigilant to root out any of the bad practices and habits that are associated with bureaucracies. The only way they can achieve this is to monitor every minute of the public servants working day. However even the new bloated management teams and inspectorates cannot be physically present at every minute of the working day of each staff member. Consequently they have devised a system of targets which is constantly growing as inspectors are constantly thinking of new ones and workers are expected to provide evidence that they have been working to achieve these targets. This involves members of the staff team completing paperwork to demonstrate how they have achieved these targets.The demands on staff time for record keeping have reached such level that in teaching for instance the time spend on record keeping is creeping up towards 50% of time spent in work. The priority in the public sector has become not service delivery but record keeping which enables the manager to demonstrate the ‘appearance’ of staff adopting good working practices which is thought to be indicative of the quality of service provided. 
These new managers and inspectors have a fear of staff having free time on their hands, teachers provide perhaps the worst example in their minds. They have breaks when the children are going out to play or having lunch. Unfortunately for these new ‘public choice’ theorist children cannot be keep working without a break. This gives the teachers an opportunity to get together and talk, this give rise to the greatest fear of the public sector reformer, which is ‘canteen culture’. Given free time the teachers have the opportunity to discuss their teaching with their colleagues and what this enables is the dissemination of ‘worst practice’,the so called canteen culture or what others might call the ‘work ethic’. These reformers are terrified of the older staff passing on bad practice to new teachers. The only solution is to turn free or non teaching time into work time, this time can be used to complete some of the many records required of teachers to demonstrate good practice.
I can confirm the worst fears of the public choice theorists, we did not spend non teaching time discussing good teaching practice, but we gossiped about television programmes, who was having an affair with who, argued about politics. In other words we never used this precious time to discuss how to improve our teaching practice, we were of target or whatever the management speak is for wasting time. I can remember that is one school a group of staff had set up in one of the staff rooms the board game ‘Risk’ and spent all their lunch times playing this fiendish game. This surely demonstrates best the horrors of allowing staff to do what they wish with non teaching time.
Fortunately reformers were able to see the horrors of the old well established service practices and were able to sweep them away. Now in schools staff are constantly on target and the obstructive ‘canteen culture’ of the past is fast disappearing. As an example of the latter I can remember receiving a survey from the education ministry asking to complete and return so they could work on the results to improve teaching practice in all schools. I with all my senior male colleagues threw the survey in the bin. Today no teacher would contemplate treating with such contempt a directive from the education ministry.
What I going to suggest is that when we consider the fruits of these reforms the question to be asked is have the expensive reforms achieved what was intended or could improvements have been better managed at a much smaller cost. As a sceptical economist I tend to the latter view, perhaps an example from teaching will demonstrate my view better. The governments of today and the recent past keep trumpeting the success of their reforms as demonstrated by the improvement in school exam results. What these politicians fail to understand is that there is a different between coaching students to pass an exam and educating them. Educationalists will admit what makes a good education is open to debate, as is how students actually learn, yet our education ministers claim they know, in fact they have very little understanding of what makes a good education. It may be elitist to say so but throwing out a few spurious statistics will impress a gullible press and media but that all it is the appearance of an improvement in the education system.
Unlike most critics of the recent reforms I am not going to argue that the previous education system in which the public service ethos was seen as the main motivator was perfect but that the reforms introduced at great cost have failed to achieve their purpose. There were much better ways to improve a system that actually worked quite well, methods better than adopting a ground zero approach to reform. What reformers believe is only by destroying the old system and practices will they will be able to change the system. 
What Simon Jenkins the journalist and all the denizens of Fleet St., Westminster and Whitehall fail to understand is that public sector work is undertaken by people for other people, it’s a personal relationship. People are different and have different needs they cannot all be fitted into one schema developed some Whitehall bureaucrats under the direction of a politician. Policy is directed in way that will win favourable headlines. The teaching of reading demonstrates this, any educationalist or teacher will say that children learn to read in a variety of different ways.Yet the education ministry has declared in all ignorance that only one method is acceptable and that is phonics. Good practice or reality matters little to the Whitehall bureaucrat or politician, why matters is conformity to what is seen as good practice.
What politicians and the media are good at doing is seeing perceived failures or inefficiencies and acting in a way that is often counter productive to good practice. Certainly it is frustrating when you are queuing at the Post Office when the counter clerk takes what seems to be an inexplicable break, when there are huge queues in the office. Yet this may be the only way the stressed staff can cope with the myriad list of rules, understaffing and the sheer monotony of the work. However it is on this perception of the service that our political masters decide policy. When I was in the teachers staffroom myself and my colleagues would often express in disrespectful attitudes our attitude to our managers and the latest government initiative. Our disrespect was often a way of coping with the stress of the job, can I suggest it was no more than skin deep moaning. Today that would be considered as heresy and such negativity would be discouraged quite actively in the staff room, denying the staff the opportunity to let go, now everybody has to be on message. 
When prejudice becomes policy it makes for bad policy, the fact that every body knows that public sector works abuse the system to their own advantage, is the poorest basis on which to form a policy. The evidence for the poor performance of public service has never been more than anecdotal, yet it is on the basis of this anecdotal evidence that the reforms of the past twenty or so years have been based. While there may be some evidence for improvements in quality of service the evidence is not overwhelming. Policy based on an obsession with the minutiae of the workers daily routine it is obviously going to miss the ‘wood for the trees’. Success is now measured in small percentage increases in statistics, the sight of the bigger picture has been completely lost. The old British civil service had the skills and resources to focus the whole nation’s productive effort towards fighting the war, the new British civil service was unable to organise the competitive tendering by rail companies for right to operate the West Coast railway line. It was so poorly organised that the losing bidder Virgin Rail was easily able to get the decision reversed at a court hearing. If mistrust is the abiding characteristic of the relationship between ministers and civil servants the quality service provided is going to be poor.
To this sceptical economist it appears that the politicians having identified faults in the public sector have devised reforms that instead of improving the service have on the whole made it much worse public service.