Hutton on Private Equity and Sinclair's Law of Bad Guardian Articles

For now he has given up on spouting ignorance about China and getting angry about private equity is, apparently, Hutton's 'thing'. This article is about as bad as the last one.

"It is time to come to the defence of the public limited company, one of the great Enlightenment gifts to western civilisation. Increasingly capital, in the quest for higher returns to make vast personal fortunes, is going private to escape the demands of public accountability on stock markets. If uninterrupted, the long-term adverse consequences of this privatisation of capital for our economy, society and democracy will be profound."

Again this bizarre idea that stock markets ensure public accountability. They hold firms accountable to the objective of making the fortunes of investors just as the shareholders of private equity firms do.

"Even six months ago, very few outside the City or the readers of business pages had come across the idea of private equity. Today, as Sainsbury's is stalked by a club of four private equity firms allegedly plotting a £10bn bid and the GMB has ignited a campaign against job losses incurred in private equity restructurings by comically embarrassing one its leading lights - Damon Buffini, the boss of Permira - private equity is news. It is even becoming an issue in the contest for the deputy leadership of the Labour party."

Job losses, while unpleasant for individuals, are a part of how the economy adjusts to changing technology and consumer tastes. If private equity firms can run a firm effectively with fewer employees that is a pure efficiency gain and those employees can be employed elsewhere where they are more useful. This transition can be particularly difficult for those with specialised skills, set in their ways or in a troubled labour market but the solution is to get better at moving those laid off into more productive employment rather than have them continue in jobs which are no longer required.

"The story, as recounted by consensus opinion from the shadow chancellor, George Osborne, to the CBI, and eagerly rehearsed by the private equity industry itself, is that the emergence of more than 700 private equity companies deploying saving and borrowing power of more than £1 trillion is crucial to wealth generation. By taking public companies out of the public arena of accountability, regular reporting and scrutiny, they can instead enjoy the benefits of engaged, committed ownership.

Too many companies, they allege, are just not trying hard enough to maximise their profits, indulged by disinterested pension fund and insurance company shareholders. They need the managerial alchemy of private equity investors who, aiming to make "life-transforming" money for themselves, will give them the necessary managerial and strategic shock treatment."

This is an utterly ignorant caricature of the role private equity firms play. It is the kind of logic that flies on the pages of the Guardian to a readership not versed in finance.

A recurring problem for stock markets is that ownership is so dispersed that each individual owner has such a small stake in each firm that the costs of actively monitoring its management, which can be significant, are not worth paying for marginal changes in results; it is preferable for each investor to free ride off the monitoring efforts of others who might be more conscientious. This leaves managers with a particularly strong hand in avoiding shareholder control of activity that might not be in shareholder interest, whether paying higher wages than are profitable or blowing piles of money on business jets. This problem is partly overcome by large groupings of investors such as the Association of British Insurers and by the threat of takeover. However, private equity avoids these problems entirely as ownership is concentrated and there is, therefore, active monitoring of management. Their improvements to firms financial performance are far from alchemical.

"One truth about private equity shines out: the extravagant management fees and annual "carry" (the share in profits) certainly means life-changing fortunes. Researchers at Manchester University's ESRC Centre for Socio-Cultural Change recently got hold of the internal management accounts of one fund with up to £8bn of funds under management. After five years 30 full partners expected to make between £25m and £50m each."

Can we call it Sinclair's Law that all bad Guardian articles will eventually make a shameless statement of envy?

"The rest of the industry's claims about creating jobs, investment and exports do not bear close scrutiny. Much of the alleged managerial alchemy is no more than old-fashioned financial engineering - that is, leveraging up returns by incurring lots of debt. One study by Citigroup showed that if pension funds and insurance firms had borrowed money themselves and invested in a basket of companies in which private equity groups invested, they would have made higher returns than even the best-performing private equity firms."

If your case is that these firms don't make sufficient returns to be a good investment then this isn't a political issue and we can leave a solution to the market which will stop investing in private equity funds if they don't get results.

"Mortgaging the future to capture gains for personal enrichment in the present is easy - as one chief executive of a well-known public company told me recently, the task of the good manager is to resist it. Managers have to balance the interests of today's shareholders with tomorrow's shareholders. Private equity drives a coach and horses through the proposition. And as Paul Myners, the former chairman of Marks & Spencer and chairman of Guardian Media Group, has remarked: "The one party that is not rewarded is the employees, who generally speaking suffer an erosion of job security and a loss of benefits.""

If a firm is irrationally rewarding employees with job security and benefits that they don't earn in terms of production then that will be competed away, possibly from overseas, anyway. Private equity just speeds the process. If they do earn their benefits then it won't be in the financial interests of the firm to lose them.

"The catalogue of firms thus financially engineered is endless. A consortium bought the car rental company Hertz in 2005, packaged up the car fleet in blocks of tradeable assets that could be bought and sold by banks, and sold the weakened company back to the stock market. Others have bought media outfits such as PanamSat in the US or EirCom in Ireland - not to develop a free media that holds truth to power but, as Columbia University's Eli Noam argues, to weaken that capacity while remaining unaccountable owners themselves.

In Britain Debenhams was bought, its stores sold off to be leased back by the enfeebled company, which was then sold back to the stock market. And other public companies, including ICI, Amec and EMI, are being stalked, and adjusting their strategies accordingly. The shadow of private equity falls everywhere, making the gamut of British business hyper short-termist."

This misses the point that, while Hertz may make larger earnings through maintaining ownership of its cars, for that to be a good investment is has to make sufficiently larger earnings to offset the opportunity cost of capital that is inherent in maintaining ownership of large stocks of capital like cars. If private equity firms can earn more by selling those cars and then leasing them back (reductions in Hertz's earning capacity will be reflected in its share price which costs private equity firms). Unless Hutton can point to some kind of irrationality which would cause the market to not take account of the harm to Hertz's earnings power of no longer owning cars he has no case that it will be in the interests of private equity to do so unless owning cars is a less productive use of capital than some alternative. If there is a more productive alternate use of capital it is in all our interests that it capital is directed towards that alternative.

"This is not pro- but anti-wealth-creation. In this respect the attitude of private equity closely mimics that of the Chinese communist party. Both conceive of companies as networks of contracts between capital and labour that generate revenue streams to be manipulated by whoever has central control for personal or political advantage. Neither has any conception of companies as Enlightenment institutions that incorporate real-life human beings into a joint enterprise, in which being publicly scrutinised and held to account helps managers make better decisions. The foundation of a durable business, as James Collin and Jerry Porras argued in their famous book, Built to Last, requires vision, values, leadership and purpose around an organisation's "reason to be" - the antithesis of everything private equity stands for."

Private equity firms have a very precise vision: shareholder value. A very definite set of values: they value money. They pay closer attention than other firms to leadership thanks to not having the free riding shareholder problem. Finally, their purpose is clear: make money.

By putting capital to its most productive use they ensure that our economy adjusts more quickly to new priorities, new technologies and new challenges.

"So if we want such companies, shareholders have to give managers room for manoeuvre and back long-term business strategies. But British shareholders are not required by law to take their ownership responsibilities seriously (it would be a "burden on business"). Nor are British companies required to give them the range and quality of information that might help them. As a result, British shareholders are extraordinarily neglectful of their ownership responsibilities."

Require shareholders to take their responsibilities seriously by law? How exactly?

A legal responsibility for firm performance on the shoulders of shareholders would end the stock market's potential to raise funds from a wide range of sources as it would remove the legal separation between ownership and management which is the true purpose of that "Enlightenment institution". Not being legally responsible for its conduct allows shareholders to invest without monitoring the company's day to day operation. If they have to monitor a company day to day most investors won't be able to invest outside their own narrow sphere of expertise and geography. Modern capitalism and large scale enterprise would suffer massively as it would be impossible to raise capital on the necessary scale.

"Pension funds and insurance companies are myopic and short-term enough, but because takeover is so easy in Britain private equity has been able to carry short-termism to new extremes. This is said to raise productivity and performance. I would argue the opposite. The chief reason British business remains at the bottom of the international league tables for innovation, research and development, and productivity growth is because of too much takeover and too much private equity. Innovation lowers short-term profits."

Where is the evidence for this short-termism? There are plenty of other plausible explanations for Britain's problems with innovation (also, don't overestimate the degree of these problems); weak science education is a good place to start (has been a problem since well before the First World War). There may be a big focus on share prices but, unless Hutton is going to actually discuss why markets might be myopic, these should reflect expected future earnings as these affect future dividends and, hence, the earnings of any potential purchaser.

"The answer is obvious. Private equity cannot be outlawed; in any case it can do a good job. Rather, the perverse incentives in Britain that favour takeover need to be removed. We need to defend the public company and create conditions in which it can prosper. But who is going to do that? Not the Conservative party, in thrall to private equity, and not, judging by its legislative record, the government. Our politicians are confused. There is more to wealth creation than constructing a plutocracy of private equity partners."

Takeover is one of the most effective means by which managers are held to account for poor performance. Britain's low regulatory bar to takeover is the reason why much fewer of our firms than those in other countries are run as the personal fief of management. Managers can be prideful, selfish and flawed just like all other human beings and Hutton's call to inhibit an important source of market discipline upon them is one to ignore.

John Quiggin on Happiness Surveys

This is an absolutely brilliant post; via Marginal Revolution:

"Suppose you wanted to establish whether children’s height increased with age, but you couldn’t measure height directly.


One way to respond to this problem would be to interview groups of children in different classes at school, and asked them the question Don suggests “On a scale of 1 to 10, how tall are you?”. My guess is that the data would look pretty much like reported data on the relationship between happiness and income.

That is, within the groups, you’d find that kids who were old relative to their classmates tended to be report higher numbers than those who were young relative to their classmates (for the obvious reason that, on average, the older ones would in fact be taller than their classmates).

But, for all groups, I suspect you’d find that the median response was something like 7. Even though average age is higher for higher classes, average reported height would not change (or not change much).

So you’d reach the conclusion that height was a subjective construct depending on relative, rather than absolute, age. If you wanted, you could establish some sort of metaphorical link between being old relative to your classmates and being “looked up to”.

But in reality, height does increase with (absolute) age and the problem is with the scaling of the question. A question of this kind can only give relative answers."

This massively undermines the, already weak, happiness based case for high marginal rates of tax made by Layard and the like.

Zoe Williams on the Congestion Charge extension

Parts of this article beggar belief:

"One of the protest placards said: "Will your congestion charge pay for Livingstone's next trip to Cuba?" This is probably the most stupid of the arguments against the charge extension, unsupported as it is by any evidence, plucked from the irrational fumes of an angry motoring mind, but really, all the arguments against it are senseless. Yes, it costs money. The counter- argument is, of course, that it will pay for itself, based on the fact that the main zone made £122m profit last year, which was mainly ploughed back into buses."

This is truly idiotic. It doesn't "pay for itself"; motorists, Londoners pay for it.

"Now I can't stand the bendy buses, but they are still better for the air quality and the wider environment and sense of social cohesion than any car is. I cannot stand Transport for London (TfL), with its patronising leaflets for the lady traveller and the overall arrogance of its literature - you could spend a year wandering the corridors of its leaflets and website and all you will be told is how to pay, how important it is that you pay and what will happen to you if you don't. It's old-school leftie authority, basically. I am probably as anti-TfL as any Chelsea-dwelling 4x4 owner, but that shouldn't blind any of us to the fact that, not only is it doing the right thing, it's pursuing the only course of action that makes any sense."

The argument that this is good for social cohesion is the funny one in this paragraph. I sit on the bus most days and am a reasonably friendly fellow passenger but the idea that this gives me a common feeling with my fellow citizens, even though no one is even talking, is a little implausible.

"Naturally, the anti-extension lobby makes that noise the self-seeking always make when they're trying to invest their cause with more nobility and long-termism than it actually has. "This is bad for business" is of course true, as businessmen will have to pay the charge, and customers might end up buying heavy things off the internet. Possibly a purveyor of Venetian glass on a Kensington mews might go bust, but he or she will be replaced, I have no doubt, by someone selling lighter items, like sandwiches. Who cares anyway? If five shops close and are perpetually empty, and 500 cars are left at home instead of driven, we still all win."

Those shops are run by people with families and viewing their impoverishment with such equanimity is pretty inhuman. I guess leftie fellow feeling doesn't extend to 'capitalists'. By comparision, the congestion and pollution effects of 500 cars are pretty marginal.

"Conservative spokeswoman Angie Bray remarked: "I think [Ken Livingstone] has put his own political wishes before the interests of London." An otiose remark. If anything at all were to jeopardise Livingstone's plans it would be this extension and west Londoners' voting against him as a consequence of it. Regardless of that, as he says, there are 70,000 fewer vehicles in the original zone, so the interests of London have already been served 70,000 times!"

Livingstone has noticed that West London doesn't vote for him much anyway. That's why it looks pretty self-serving for him to impose an extra tax, which looks decidedly arbirtrary because it is supposed to combat congestion which isn't really that bad in most of West London (there are problems with speeding unlike in Central), on that particular community.

"Besides which, the system couldn't have stayed as it was, since it was totally unfair. The south-east of London is much poorer than the south-west. Drivers going east as far as Tower Bridge and south to the sparkling streets of Rotherhithe were being hit by a charge that exempted drivers in Holland Park. It was unjust and couldn't have continued."

Fairness makes sense when taxes are a cost to those taxed but Williams has spent the rest of the article arguing that this one isn't as it improves congestion and the environment in the areas concerned. Given that this tax is supposed to reduce congestion, rather than raising revenue which it is a highly inefficient mechanism for, surely the correct criteria isn't some prehistoric socialist sense that the rich should pay but an analysis of where congestion is at its worst?

If the programme has been extended too far South then it should ended in those areas but that has nothing to do with the case in the West; the only relevant question for each area is how bad congestion is.

"More important, for this current batch of protesters there is no ballast to this argument. The truth is that car use has to be reduced. Whether this is done to the advantage of the rich or the poor, or done at random, or done in the spirit of a practical joke, with TfL elves putting sugar in every fifth petrol tank, the result will still be better than having done nothing. So vote against Livingstone if your own interests are really so much more important than those of the community, but do so quietly, as pinch-lipped self-servers have always voted."

Given that there is no analysis in this article on how much congestion there is in West London, or any argument as to why a London only scheme makes a remotely significant difference to global warming or some other problem, Williams has done nothing to establish how important it is to reduce car use. She has assumed in this entire article that it is an absolute priority, that we have to reduce car use. Why?

Even if the externalities from cars in West London are significant this only means that it would be good to reduce car use. That should still be balanced against other priorities such as the fortunes of West London businesses and the money wasted in the collection of a costly tax to administer.

Oh, this entire post is written by someone who takes the bus, tube or walks; there goes the 'it's only the self-serving' argument.

The Great Global Warming Omni-Justification

Mark Steyn often frustrates me. His imaginary revenge over the immoral atheists of Europe through rather ambitious predictions of their dying out is distinctly unimpressive. Despite this when he gets a real left-wing absurdity in his sights his assault on it is always great fun and that more than makes up for the weaknesses in his 'magnum opus'. This article on global warming science is a classic example:

"Alas, the science isn't so solid. In the '70s, it was predicting a new ice age. Then it switched to global warming. Now it prefers "climate change." If it's hot, that's a sign of "climate change." If it's cold, that's a sign of "climate change." If it's 53 with sunny periods and light showers, you need to grab an overnight bag and get outta there right now because "climate change" is accelerating out of control.

The silliest argument is the anecdotal one: "You only have to look outside your window to see that climate change is happening." Outside my window in northern New England last week, it was minus 20 Fahrenheit. Very cold. Must be the old climate change kicking in, right? After all, December was very mild. Which was itself a sign of climate change. A few years ago, the little old lady who served as my town's historian for many decades combed over the farmers' diaries from two centuries ago that various neighbors had donated to her: From the daily records of 15 Januarys, she concluded that three were what we'd now regard as classic New Hampshire winters, ideal for lumbering or winter sports; eight had January thaws, and four had no snow at all. This was in the pre-industrial 18th century.

Today, faced with eight thaws and four entirely snowless Januarys, we'd all be running around shrieking that the great Gaia is displeased. Wake up and smell the CO2, people! We need to toss another virgin into the volcano. A virgin SUV, that is. Brand-new model, straight off the assembly line, cupholders never been used. And as the upholstery howls in agony, we natives will stand around chanting along with High Priestess Natalie Cole's classic recording: ''Unsustainable, that's what you are.'

[...]

The question is whether what's happening now is just the natural give and take of the planet, as Erik the Red and my town's early settlers understood it. Or whether it's something so unprecedented that we need to divert vast resources to a transnational elite bureaucracy so that they can do their best to cripple the global economy and deny much of the developing world access to the healthier and longer lives that capitalism brings. To the eco-chondriacs that's a no-brainer. As Mark Fenn of the Worldwide Fund for Nature says in the new documentary ''Mine Your Own Business'':

''In Madagascar, the indicators of quality of life are not housing. They're not nutrition, specifically. They're not health in a lot of cases. It's not education. A lot of children in Fort Dauphin do not go to school because the parents don't consider that to be important. . . . People have no jobs, but if I could put you with a family and you could count how many times in a day that that family smiles. Then I put you with a family well off, in New York or London, and you count how many times people smile. . . . You tell me who is rich and who is poor."

Well, if smiles are the measure of quality of life, I'm Bill Gates; I'm laughing my head off. Male life expectancy in Madagascar is 52.5 years. But Mark Fenn is right: Those l'il malnourished villagers sure look awful cute dancing up and down when the big environmentalist activist flies in to shoot the fund-raising video."

Brilliant.

What I'm beginning to notice is that global warming, and the "but we have to do something" attitude which comes with it, is used as an argument for just about every shoddy, down on its luck, political idea going.

It's used as an argument for agricultural subsidies which take the form of ethanol subsidy (an absurd response to climate change) in the United States and an, albeit modified, continuation of the CAP subsidies in Europe.

It's used as an argument for vegetarianism. We already knew that vegetarianism usually means consuming less agricultural production but so does eating or otherwise consuming less in a range of ways; the efficiency challenge of global warming should surely be to maintain the highest level of consumption for a given level of warming? Eating less probably has more fringe benefits given obesity levels but no one proposes that as a solution to global warming, do they?

It is used as an argument for global governance instead of democratically accountable nations; the transnational elites that Steyn refers to.

It is used as an argument for 'soak the rich' socialism; most notably through the "contraction and convergence" doctrine.

It's used as an argument for greater taxation. While everyone argues the hypothetical of a neutral switch for non-green taxation it never quite seems to work out that way.

It's used as an argument against an expansion of airports and foreign travel for those on medium-low incomes; turning our back on one of the great achievements of the twentieth century in deference to narrow 'not in my backyard' opposition.

All of these, otherwise weak, positions are justified by climate change implications because, with the present state of the climate change debate, they know that normal standards of evidence and logic will go out of the window and any opposition will be compared to David Irving or, in a new twist, 9/11 conspiracy theorists by Monbiot and the rest of the global warming clergy. It is a potent excuse for discredited ideologies and narrow interests.

Power and the Market

The argument on Chris Dillow’s blog that the Bowles & Gintes study he has recently cited identifies genuine power within labour market transactions appears to me to be deeply flawed. I’m going to first deal with a separate argument in Chris’s piece before moving on to discuss Bowles & Gintes.

Chris makes a classic, and at times credible, left-wing argument for power within the labour market; that some employers have power over employees because there are imperfections in labour markets. His example of City law firms with particularly prestigious and demanded jobs exists, I would guess, thanks to barriers to entry in the form of a need for an established reputation. A more conventional example would be that of a town with only one major employer. His other argument, that employees have less wealth so lose more if they are fired than employers lose if they resign, is dependent upon this as in an efficient labour market they would find another employer. I would argue that these labour market inefficiencies go both ways as superstar employees are just as rare and coveted as jobs at superstar firms. The best solution would seem to be to widen the range of plausible employers/employees. Freedom of movement within Europe probably contributes to this along with an increase in cultural willingness to move between regions and a decline in other institutional barriers to movement (the Poor Laws are a famous, if rather old, example of legislation which inhibited movement of labour). I’ll make a controversial but credible claim at this point: the railways, through their impact on the perception of distance and the cost of travel, did more to lessen inequities in labour market power than the unions.

Now, onto Bowles and Gintes’ argument which is summarised by Dillow here (I’ve corrected average wage to market-clearing as I think that’s what he means… sorry if I’m mistaken):

“But, say Bowles and Gintis, bosses' power is more widespread than this. It exists in any job where efficiency wages are paid - that is, where the firm pays [above market-clearing] wages in exchange for above-average effort. In such firms, bosses have power over workers because the threat of the sack is credible and worrying, as the worker could not get such a well-paid job elsewhere. However, workers don't have symmetric power over bosses, as the threat to leave is not credible.”

This is then supposed to feed into allowing bosses to sanction employees without suffering in return. However, employees would not be paying efficient wages if they were not getting something in return. The Wikipedia article summarises some proposed benefits to a firm of paying an efficiency wage:

• “Avoiding Shirking: If it is difficult to measure the quantity or quality of a worker's effort -- and systems of piece rates or commissions are impossible -- there may be an incentive for him or her to "shirk" (do less work than agreed). The manager thus may pay an efficiency wage in order to create or increase the cost of job loss, which gives a sting to the threat of firing. This threat can be used to prevent shirking (or "moral hazard").
• Minimizing Turnover: By paying efficiency wages, the employees' incentive to quit and seek jobs elsewhere is minimized. This strategy makes sense because it is often expensive to train replacement workers.
• Adverse Selection: If job performance depends on workers' ability and workers differ from each other in those terms, firms with higher wages will attract more able job-seekers. An efficiency wage means that the employer can pick and choose among applicants to get the best possible.
• Sociological Theories: efficiency wages may result from traditions. Akerlof's theory (in very simple terms) involves higher wages encouraging high morale, which raises productivity.
• Nutritional Theories: In developing countries, efficiency wages may allow workers to eat well enough to avoid illness and to be able to work harder and more productively.”

Just as an employer might pay an employee more if they can offer better skills or longer hours they might pay them to be more loyal or offer the other benefits of an efficiency wage paid worker. If they are to sanction employees, to use the power they supposedly possess, then that must necessarily reduce the loyalty of their employees (or the other benefits of an efficiency wage). Every use of the power granted by efficiency wages also carries a cost with its use in the opportunity cost of other uses of the funds required to pay efficiency wages whose influence has now been spent. If they misuse this power they have to be less efficient than other employers and competition will see to them. This would not appear to be a Pareto inefficient result because employers pay very directly for any exercise of influence over their workers and there is no reason to think either side is acting irrationally.

These limitations and costs to market power illustrate that it is profoundly different to political power. If power is something which is bought and only maintained so long as it is in the interests of the person you have power over to remain within your control is it really power at all?

Efficient wages buy a service just like regular wages and one of those services is reliability; this is very similar to the standard influences of money and very little like power.

More on Pre-Birth Insurance

I’m glad Chris Dillow has clarified his position away from the Rawlsian theory of justice. I think that now his view, as I understand it, has become considerably more sensible. However, I would caution that it may have lost a lot of its intellectual implications. Before discussing this I must respond to a specific question.

"Being born disadvantaged would be a sacrifice I hope I would be happy to risk so that humanity might, on occasion, do something glorious that might ennoble us all.

This is an empirical claim. How disadvantaged are you prepared to be? Born in Burnley maybe. But what about being born in Darfur? And what are the chances that such disadvantage is actually a necessary condition of humanity doing something noble?"

I’m not saying that the two necessarily are in conflict. Just as most Rawlsians usually do not believe that a society of Communist perfect equality would be conducive to the best interests of the poorest, I certainly do not believe that a society conducive to brilliance is also one that allows its citizens to starve. Both sides have plenty of room to moderate but that does not imply that the debate over whether a society’s goal should be, to grossly simplify, comfort or glory is not important.

The main clarification in Chris’s new post is that he does not believe in moral luck and is therefore willing to allow that people have, to some extent, earned their income. This means that, instead of arguing that our money is properly society's as we have not earned it, Chris is instead making a plea that our society should be a sympathetic one. He is forming a secular version of “There, but for the grace of God, go I”. This is entirely legitimate and morally worthy but doesn’t really offer a response to the libertarian doctrine that we have no right to take what others have earned, they would argue that true sympathy and caring for the disadvantaged is only possible when chosen freely, or even the the objectivist arguments against altruism which start from radically different notions of right and wrong. Without moral luck the original position is a far more moderate and sensible notion but it is hardly a radical departure from a moral code most are already working to and cannot refute libertarianism.

Chris Dillow on Pre-Birth Insurance

A couple of Chris Dillow's posts have particularly troubled me lately. I'll deal with his arguments on power in the market tomorrow. First, this article which he wrote last September, I'm afraid I missed it at the time but he is linking to it a lot. It leaves out some of the most potent critiques of Rawlsian theories of justice. There are others but I'll discuss three which I find important here:

1. It requires complete moral luck: The interesting result here isn't really created by the new logic of the original position but by the assumption that no one can earn anything and success is entirely a gamble. This is enough to cut Nozick and Locke to pieces but most other moral theory as well. The only basis that can really be established for this is scientific determinism which is more of an assumption than an established fact. While, as the Economist noted in its Christmas issue, the sphere of free will which has not been questioned by science is shrinking any role for it at all would cascade and cause enormous trouble for the logic of the original position.

One other thing to note is that moral luck completely undermines the position Chris takes on the inheritance tax which is about taxing unearned wealth more than that which is earned. Why do you earn what you make with the talents and character luck gave you any more than you earn what luck gave you through inheritance? City bankers were lucky to be born able to earn their bonuses so why do they deserve that wealth more than inheriting children?

If that doesn't trouble Chris and undermine his position on the inheritance tax then he doesn't really buy the concept of moral luck at all and should give up on Rawls.

2. We don't really know how we would behave in the original position: Would people be risk averse before they knew what they had to lose? The risk averse tendency may well be contingent upon a hand in life which you have been dealt and become attached to. This kind of question is clearly unanswerable and hints to the weakness of the original position as an abstraction.

3. While the Rawlsian position can tolerate such things as art, which has little value to the common man, in the name of a free society or incentives which might benefit the poorest, it assigns no independent value to them. After all, to be an artist is to sit in a room painting pictures most likely only the middle class will value while others starve; art is cruelty. Alykhan Velshi responded to my post on this subject and the Mirabella V with a quote from Harold Bloom:

"The pleasures of reading are indeed selfish rather than social. You cannot directly improve anyone's life by reading better or more deeply. I remain skeptical of the traditional social hope that care for others may be stimulated by the growth of individual imagination, and I am wary of any arguments whatsoever that connect the pleasures of solitary reading to the public good."

Tolerating this is not enough. Any theory of justice which fails to appreciate the higher instincts of mankind is a manifesto for venal banality, for the last man. While Chris might see it as ignoble to want to take the results of a gamble you would not have chosen it would seem, to me, to be mean spirited and low to value some having the comfort to read, paint and own big boats lower than avoiding the risk of being born in Burnley.

I hope that, were I to find myself in an original position, I would choose that some be comfortable enough to read, paint or own stunning yachts (I am still in close to an original position with regards owning a luxury yacht) even if that came at the expense of me risking being worse off. Being born disadvantaged would be a sacrifice I hope I would be happy to risk so that humanity might, on occasion, do something glorious that might ennoble us all.

Ricardo López Murphy

When I saw this advert on Iain Dale's Diary I was a little worried it might be for a socialist. It's a truly brilliant advert and part of that brilliance is that it avoids sounding partisan but instead sounds a note of hope. That hope could have been the false promises of a socialist candidate. However, instead it turns out he's an economist with a Master's from Chicago and head of the centre-right party; one of us. Yay.

Conservatism contra Chamberlain and Carter

Gracchi contends that conservatives are particularly motivated by mistakes made by Chamberlain in the thirties and Carter in the seventies. I do not think it is quite that simple; all movements rely upon perceptions of past disasters to support their arguments and motivate supporters.

The case is simplest in American foreign policy: Witness the debate over the Iraq war which had competing sets of historical imagery being promoted by either side. The right cited Churchill as inspiration and Carter as the face of failure while the left called upon the example of Vietnam as an example of the failed war they predicted Iraq would be.

In American domestic policy the left, for almost the entire twentieth century, traded upon the memory of the Great Depression as a tale of capitalist excess turned to grief. This is very similar to right-wingers in the UK who trade on the strong popular memory of going cap in hand to the IMF and the other tribulations of relative economic decline or the UK left and its appeal to avoid a repeat of the 'heartless' eighties.

Like most uses of history for political cases these are all, to some extent, simplifications but I would argue that the most innacurate is probably the American left's use of the Great Depression. That the Depression was a result of market failure and America rescued by the New Deal is almost unsustainable. Sirkin's early paper is, to my mind, still the simplest way of explaining the starting point of the case that the Wall Street Crash was not a result of irrationality; had the growth of the twenties continued in the thirties share prices at their peak would not have been irrational. Friedman's alternative hypothesis that an incompetent monetary policy was what caused the depression is now largely accepted although the theory has been refined to include the effects of the Gold Standard by Bernanke, now Fed chairman. The right-wing critique of the New Deal is also strong. The left-wing use of Thatcher is not quite as demonstrably wrong as the case against the eighties centres upon unclear questions of methodology such as the question of whether relative or absolute poverty is a more useful measure but manages to ignore the huge change in the UK's economic fortunes that arose in the eighties.

By contrast, the right-wing cases that there was a genuine failure to confront evil under Chamberlain and Carter and that statism and labour power made a wreck of the postwar British economy clearly contain significant elements of truth. The simplifications are in their application to today's problems rather than in their account of history. Conservatives are fond of enduring truths and one of these is that the truly evil can rarely be appeased but must be opposed. Another is that attempts by the state to manage an economy into success will usually be counterproductive. Decades of defeat and failure are used to give the core thruths of conservatism emotional impact.

I'm also not sure how much this tells us about the future of conservatism. How much would looking at loathed decades from the past have helped us predict the future path of conservatism in the seventies or in the thirties?

Conservative thinking will respond to new challenges and new failures and, unfortunately, may experience new failures of its own but I'm not sure we can predict them from looking at past loathed decades. Might we look back at the nineties or the noughties as host to the worst manifestations of a society sapping transnational progressivism or will some new illiberal hell arise in coming decades for conservatives to remember as a new darkest hour?

Can right-wingers be funny?

I'm not interested in defending the Half Hour News Hour which, as I noted in an earlier post, looks like it's going to be truly awful but Steven Merrit's article for the Observer doesn't have a clue.

He argues that right-wingers can't be satirical because comedy "at its best is inherently subversive, from the Lord of Misrule to Saturday Night Live; it holds up to mockery the follies of those in power". That's right, no left-winger has ever held power and embarked upon a folly. Idiot.

"This is why conservatives and satire just don't go; you can't be subversive and want to preserve the status quo." This is an utter misrepresentation of conservatism even in its most traditionalist, Burkean form. Burkean conservatism respects tried and tested institutions but this does not imply supporting present structures of power as these may or may not reflect the outcome of Burkean, incremental change. In most states left and right will support and oppose the status quo on different issues.

What really bothers me is that Merrit hasn't even bothered to address the huge great hole in his case: South Park. The Peabody Award winning show is libertarian but most comics are probably at the anarchist end of the left-wing as well.

There isn't a lot of right-wing comedy but this difference exists in other cultural activities as well. It isn't because right-wing culture is impossible or because right-wingers are less cultured but because right-wingers have other, rather more practical, things to be doing instead of devoting their lives to telling jokes.

A Sceptic's Response to Climate Change on ConservativeHome

ConservativeHome's Platform carries an article I have written discussing the form and function of a sceptic's response to climate change.