Why Is The Right So Obsessed With The BBC?

Grant Shapps recently got himself into the news with what appears to be a thinly veiled threat to the BBC to become more right-wing in its reporting or face losing its funding. This was, a few days later, followed up by an Opinium/Observer poll, which showed that there was a, not large but still significant, public perception that the BBC’s reporting had a left-wing bias. This was their graph:

Source: Opinium/Observer

Source: Opinium/Observer

The view on what is left and what is right is quite subjective though. If you read the Daily Mail every day and then read a BBC article it probably does seem left wing (it probably seems like extreme Communism) and if you read the Daily Mirror every day it probably seems very right wing.

It might therefore be useful, when interpreting the data, to take into account the newspapers that people read. What does that look like? These are the 2013 January circulation figures for all UK newspapers with circulations above 100,000. The divisions by Right, Left or Not Obvious are my own.

Title Right-Wing Left-Wing No Obvious Political Persuasion
The Sun 2,409,811
Daily Mail 1,863,151
Daily Mirror 1,058,488
Evening Standard 695,645
Daily Telegraph 555,817
Daily Star 535,957
Daily Express 529,648
The Times 399,339
i 293,946
Financial Times 275,375
Daily Record 251,535
The Guardian 204,440
The Independent 76,802
TOTAL  6,989,368  1,514,463  646,123

If you want you can put the Independent as left-wing, (which it is in terms of issues like climate change, less obvious whether it is politically), either way it doesn’t change the overall picture much. The press is overwhelmingly right-wing:

UK Newspapers' Circulation by Political Persuasion

UK Newspapers’ Circulation by Political Persuasion

If we take into account the information that is fed to people by the newspapers they read, plus the huge campaign from Tory politicians and the right-wing media to convince people that the BBC is a left-wing organisation, the only surprising thing in the poll is that more people didn’t find left-wing leanings in the reporting of the BBC.

But rather than a simple poll of people, why not actually look at all of the political reporting the BBC does and actually analyse whether it gives more time to the views of the left? Well that would be a huge task, far beyond the capacity of this blog. Fortunately it wasn’t beyond the capacity of Cardiff University and the most comprehensive analysis I have seen on the subject. Yes, from all their research they found no left-wing bias.

I want to move on to my personal view on the BBC but before I do, I need to make a (possibly) surprising admission – I actually don’t consider myself particularly left-wing. The red in my ears came a long time before the blog and is no way a reflection on a political persuasion. I actually consider myself a fairly neutral individual who has unfortunately awoken in a very right-wing world. If I found myself in a country governed by left-wing idealists and dominated by a left-wing press, perhaps my criticisms would run the other way.

I would not be BlueEaredBunny though – as I said, the ears have nothing to do with it. My position is simply that I will do my best to base my opinions on the best available evidence. At this time that position makes me slightly wary of the Labour Party and entirely conflicted with the Tories.

In this position though, I too take big issues with BBC reporting. Not because I am worried about their lack of impartiality, but because I see their need for impartiality above all else, as completely obliterating their objectivity.

Take for example, the subject of climate change. In one corner, we have science and in the other we have the political ideals of the right-wing. The BBC, in its desire for impartiality above all else, reports both sides’ arguments with equal weight and this narks me because, on the subject of climate change, I don’t feel those two sides should be represented equally. I understand the BBC’s position of needing to remain impartial but seriously people, this is important stuff and on a matter of science, scientists saying one thing and George Osborne saying the opposite should not be reported with equal weight. The best scientific minds, the people with the most knowledge of the subject, are telling us we must act now and George is telling us it isn’t a priority.

A quote from Michael Shannon it in the excellent film Take Shelter puts it better than I could:

There is a storm coming! Like nothing you have ever seen! And not a-one of you is prepared for it!

(If you haven’t seen that film, you should rectify that soon.)

Moving on from climate change, reading Stephanie Flanders’s BBC articles over the past few years has also narked me because although I rate her ability as an economic journalist very highly, her reporting seems to have often be constrained in a way that says, economists say this but the government says that. (And understandably, the Labour Party says something wishy-washy that no one really understands.)

Add immigration or welfare into the argument and the trend continues. We have evidence on one side and political ideals on the other. On each subject, the BBC reports both sides of the argument with equal weight, desperate to maintain impartiality over objectivity.

You might conclude from that that I think the BBC is rubbish. Wrong. I think the BBC panders to politicians too much but they do a fantastic amount of good outside of politics. Let’s think about their wildlife documentaries for a moment. Planet Earth, The Blue Planet, Africa, The Frozen Planet. The list goes on and on. But I’m not just listing the best BBC wildlife documentaries – I’m listing the greatest wildlife documentaries that have ever been created by any television company ever.

The sole reason that we have those programmes, and many other great programmes in other fields, is due to the way that the BBC is funded. Take way their funding and make them rely on adverts and everything would change. Making Planet Earth was never about getting the best return on investment. If you were to rely on advertising revenue, you would make far more money by just making more reality TV programmes with C-List celebrities than you would by paying some poor camera crew to sit in the Antarctic winter for months filming emperor penguins balancing an egg on their feet.

My thoughts are this: Programmes designed to maximise revenue are available everywhere, we are almost drowning in them, but those designed to be more than that are only available on the BBC. Yes their political reporting annoys people from both sides simply because we give them a mandate of impartiality over objectivity.

Yet when we see all of the good they do in other areas, that is a small price that we all have to live with and it is definitely a price worth paying.

RedEaredRabbit

Advertisements

Economic Bloodletting II: Revenge of the Quacks

Britain, 1642. A patient, Mister Edmund Conomy of London, sits up in bed, sipping broth from a bowl. People stand around his bed amazed at his miraculous recovery.

Four long years earlier, Edmund had been struck down with a severe case of anaemia. The new local physician, Doctor Gideon had fortunately arrived early on and prescribed a course of bloodletting to treat his condition. Doctor Gideon had pumped out a few glugs on his first visit, then returned each month and never noting a change in his patient’s condition, continued, each time, to pump out a few glugs more.

Mister E. Conomy’s housekeeper was a lady by the name of Miss Carmen Sents. Miss Sents, had taken issue with Dr Gideon’s prescribed treatment:

“He’s weak enough already.” She told the doctor. “Removing his blood will just weaken him further.”

“Rubbish,” snapped Dr. Gideon, “The cause of this man’s illness is clearly that his previous physician allowed him to produce too many blood cells.”

“Look, if anything he needs more blood cells, not fewer. If you can’t see that, then at least leave him as he is and wait for his body to eventually recover on its own.”

Miss Sents’s protests were ignored and over the next three years, Dr. Gideon continued his policy of letting blood from Mr E. Conomy. Mr. E. Conomy didn’t recover though. In fact he looked worse than ever.

By the fourth year, Dr. Gideon, noticing the pale and shrivelled look of his patient, decided to drastically reduce the amount of blood he was letting at each visit but he didn’t want to tell anyone he was doing that. He did just a tiny bit each time to show he was sticking to his “tough policy” because he was afraid of what people would say if he changed course.

Then the miracle happened. Mr. E. Conomy started to recover and once he started to recover, the recovery was quick. With every month that passed, his strength grew and within a year he was almost as strong as he was when the illness struck.

Dr. Gideon was made a hero. Stories of the success of his bloodletting on Mr. E. Conomy spread far and wide. Perhaps it would not be unfair to say that Dr. Gideon was a major factor in spreading them.

And what became of Miss Carmen Sents? When Mr. E. Conomy learned exactly what had cured him, and of the erstwhile protests of Miss Carmen Sents, he fired her and sent her out of his house to live on the streets. After all, the success of his treatment was obvious and where would he have been if people had listened to her?

Sadly, in all of the bravado, no one seemed to notice that in every previously recorded case of anaemia, the patient had, without bloodletting, recovered much faster than had Mr. E. Conomy.

Sadder still, they now thought that bloodletting was the best way to solve anaemia.

RedEaredRabbit

Facts? Where We’re Going We Don’t Need Facts!

So the European Commission have, for three years, been asking the Cameron government to provide evidence to substantiate his claim that the UK is suffering from a problem of “benefit tourism”. Having received nothing back in response, today they called “Shenanigans“.

As I have discussed on here before, the effects of immigration are overwhelmingly positive to the UK economy. Immigration increases economic growth. Immigration doesn’t increase unemployment. Immigrants contribute 30% more through taxes than they take through public services. In short, we would be doing significantly worse without immigrants.

You will notice that there is a marked difference between the messages I just gave you and the messages that the government sends out when discussing this subject. The biggest difference though, is that my messages are based on evidence and facts as opposed to the creation and fuelling of prejudices. (Read my earlier post, “The Immigration Fallacy” for more detail and links to comprehensive studies on the subject.)

The Daily Mail gave us a fact though, “600,000 Unemployed EU Citizens Living in Britain!” Except that it wasn’t a fact. Their definition of unemployed being different to everyone else’s by including people who weren’t seeking work such as students, retired people and spouses of employed people. The number of EU immigrants claiming job-seekers allowance, it was pointed out, was actually not 600,000 but 38,000. Now we can of course, quibble about the definition of unemployed, but if we were to use The Daily Mail’s one then overall UK unemployment, as Jonathan Portes noted, would be in excess of 15 million people, or around six times higher than our current way of measuring it.

Looking for supportive evidence was obviously a failing strategy when attempting to justify their policy of demonising immigrants, so Number 10 instead told us to forget the facts and appreciate that we needed to act due to “widespread and understandable concern” over people coming to the UK to access benefits. Well of course there is widespread concern now! The government have spent the last three and a half years trying to convince people that immigrants and benefit claimants are the root of all evil.

I’m not sure the tactic of:

  • Scare people into believing there is an immigration crisis
  • Get tough on immigration because people are now scared about an immigration crisis

…..is necessarily better than:

  • Look at the overwhelming evidence
  • Create a sensible policy based on it

The whole “benefit tourism” thing is an example of a Phantom Problem – a key tool in the government’s spin arsenal. I wrote about them in detail here, but essentially Phantom problems work like this:

  • You decide on a policy you want to implement based on your political ideals
  • Because it is based on your political ideals rather than evidence you can’t sell the policy to the public based on facts
  • You put a huge amount of effort into convincing the public that there is a crisis that can only be dealt with by implementing your tough policy
  • You implement your policy off the back of the huge public panic you have created
  • The public thank you for being tough and sorting out that crisis that was about to happen

Obviously I can understand why this disingenuous approach to policy-making is so attractive to the Conservative Party. On this, any many other issues, the evidence is simply at odds with their political ideals. I understand it but seriously, don’t we deserve a bit more than that? Ok, they have shown that using a basic framework of ignoring the facts but marketing their idealisms can be effective in molding the country as they’d like it to be, but it’s not hard to see why that is not an optimal strategy for delivering benefit to the majority.

Given that the evidence shows that immigrants contribute significantly more on average, I do see a certain irony when I see the Tories standing up behind a lectern on which is emblazoned the phrase, “For Hardworking People”.

For Hardworking People

For Hardworking People

Perhaps all they need is a wider lectern so it can say, “For Hardworking People…. As Long As You’re Not a Foreigner.”

RedEaredRabbit

The Crazy Right

I note that the US is again leading the way in showing the world how great democracies work.

Yes, the Republicans are once more holding the country to ransom, this time blocking the passing of a new government budget unless the Affordable Care Act (ACA) is postponed/reworked/abolished etc. What this means is that the Republicans are happy for hundreds of thousands of government employees to go on unpaid leave, for markets to panic, for GDP to take a hit and for many public services to be unavailable, if it means a chance of hijacking a law that has nothing whatsoever to do with passing the new government budget.

And the ACA, (or Obamacare as it has become commonly known), is a law. It was passed into law by both houses in 2010. Having failed to prevent it being passed into law and having prevented getting it repealed, Republicans have now resorted to using the American people as hostages in an act that is nothing short of shameful.

But what is the ACA? I’ve had a look and on the face of it, it’s hard to understand why someone would hate it so much. Prior to it, if you couldn’t afford private health care in America you were pretty much stuffed. Even if you could do you were by no means safe. The ACA makes it illegal for insurance companies to refuse to continue to insure you if you become sick. It makes it illegal for insurance companies to refuse to insure you if you have a pre-existing condition. It allows sons and daughters to remain on their parents’ insurance policies until they are 26 rather than having to finance the cost of health insurance themselves.

Why would Republican voters hate those things? It’s a good question and guess what? They don’t! When asked about the individual elements of the ACA, Republican voters actually support them. But the Republican Party has spent so much money on convincing people that “Obamacare” is a terrible thing, that their voters still think they don’t want it. Please do watch this short video by Jimmy Kimmel to show how ridiculous this situation is.

Yes, you didn’t imagine it – there was someone in there whose primary reason for not liking Obamacare was that it was “Un-American”, whatever the hell that means.

Moving on from voters though, Republican politicians know that the ACA and Obamacare are the same thing and they do know all of the initiatives that make it up. So why do they hate it?

Firstly, being a politician in America is an expensive business – getting elected means huge campaigns, TV commercials, travel, televised addresses. That money’s got to come from somewhere and health insurance companies donate millions of dollars to political parties and guess who gets the vast majority of it? Yep the Republicans. Why would Health Insurance companies donate lots of money to political campaigns? Well, it could be that they just like a particular politician’s stance on peace in the Middle East. Or perhaps… maybe… just maybe… they expect to get something back. Yeah – democracy my arse.

It’s not just a question of funding though. The Republican Party are what we call “Starve the Beasters” – that is that they believe that the lower the tax revenue the government takes, the better off things will be. By starving “The Beast” the private sector will surely expand to fill its place! The ACA is clearly at odds with this, as health care for those who can’t afford to go private is financed by the government.

The thing that the “Starve the Beast” rhetoric always ignores is that some things do work better when paid for through taxes. I mentioned a few of those towards the end of this post and the idea that everything works better when private than public is as stupid as the opposite scenario. The question is then, is healthcare one of the things that should remain entirely private for the US or could some government intervention help? The fact that 60 million Americans have no private health insurance, plus the fact that even Republican voters actually like all of the individual parts of the ACA probably tell you something about the answer to that question. If you feel that 60 million people shouldn’t have access to health care because they can’t afford it but state intervention would be “Un-American” then you are entitled to that view, but I would counter it by saying that you are a massive twat.

You might wonder why, as a British person, I care so much about what’s going on in the US. After all it doesn’t affect me, does it? Three points on that:

Firstly, 60 million people without access to healthcare in a country, where it could so easily be provided, saddens me greatly. Whether or not it is the country in which I live is irrelevant. Yes, of course there are many poor countries where people have no access to health care but remember folks, this is the largest economy in the world and it is a problem for which the means to solve it are easily understandable and easily available.

Secondly, the world economy is still very much dependent on the health of the US economy. When Republicans decide to screw it up for nothing more than their own nefarious agenda that affects all of us in some way.

Thirdly, when I look at the Republican party, I don’t just see some crazy people at whom to laugh. I see a party whose only concern is to make the rich richer at the expense of everyone else and that just strikes too close to home for comfort. At the moment I’m just watching the Tories going in exactly the same direction. Simon Wren-Lewis is similarly concerned. Could that really be the future to which we have to look forward? It’s not looking good:

Taxes for rich people? Let’s reduce those. Benefits for poor people? Let’s reduce those too. Public healthcare? Well, we can’t just bin it overnight but we can dismantle it bit by bit. Public education? Make schools “Academies” and then make them private. Climate change? Not a priority. Starve the Beast? Absolutely – we’ll cut the public sector throughout our next term too, whatever the state of the economy!

The Conservative party is undoubtedly moving swiftly to the right, but there is a strategy out there to try to hide that. Both they, with their “Red Ed” campaign and their friends in the right-wing press, with their attack on Ed Miliband’s “Britain Hating” dead father, are trying to position the whole thing not as their own move to the right but as the opposition’s move to the left.

It’s not hard to see the reality though and if the present weren’t bad enough, the trend suggests that the future will be worse with the gap between the moderately crazy Conservatives and the thoroughly crazy Republicans narrowing more and more. When I look at the US political right I don’t just see a bunch of nutters – I see our future.

By the way, you might be interested to know that the term, “Obamacare” was coined as a pejorative term by the Republicans – an attempt to debase it without having to directly address all those good things in it. Sadly, as you can see from the Jimmy Kimmel clip, that initiative has been effective. My hope, however, is not that this term will be disbanded. My hope is that with the rare victory over the crazy right that the ACA was, the name “Obamacare” not only replaces ACA in popular use, but remains in popular use for a very long time to come, as a tribute to a man who managed to do something great. Something that, in the face of such opposition from the crazy right, gave millions of poor people access to healthcare that they’d never otherwise have been able to afford.

And what Obamacare shows is this. No matter how crazy they are, no matter how extreme they get, no matter how much private funding they can muster and no matter how strongly they campaign for the interests of the 1%: Good things can still get done.

Perhaps, after the way things have gone recently in the UK, those of us outside the crazy right should take something from that.

RedEaredRabbit

Bubblenomics

If someone asked you to name the country you most associated with tulips, you’d immediately say, “The Netherlands!” Interestingly enough though tulips aren’t in fact an indigenous Dutch flower, having been introduced from Turkey in 1593. The Dutch quickly fell in love with them though and over the following decades they became highly prized as status symbols among the Dutch social elite.

One of the things that helped them achieve such status was the fact that the supply of tulip bulbs was quite limited, (a flowering bulb takes seven years to grow from seed) and so, as demand increased, prices did too. As prices began to take off, flower sellers bought up as many bulbs as they could in order to get them before their prices increased further. This led to a further drop in supply and a further hike in prices. It wasn’t just the flower sellers though – traders had noticed the seemingly ever-increasing price of tulip bulbs and saw a new way to make money. They started buying them, not to plant in their gardens – they were buying them in order to sell them on later at a profit.

Flower sellers and traders alike were buying bulbs now because they expected them to be more expensive later on. That is, they had an expectation that prices would keep rising and that made them want to buy them now.

If you think by talking about tulip bulbs in the 1600s, I have completely lost the plot, then let me tell you what happened next. In the winter of 1636 – 1637, the already inflated price of tulip bulbs increased by one thousand percent in just three months. Bulbs of rare varieties sold for the same price as an average house and many people mortgaged or sold their properties in order to get in on a seemingly guaranteed profit.

But then something happened. There are different theories to what the event was, or if there even was a particular event that triggered it but one day, prices stopped going up. Panicked investors saw that the peak of the market had been reached and started selling. As supply increased and demand decreased the price started to drop. Soon everyone was trying to offload their tulip bulbs before it was too late but… it was already too late. The price of tulip bulbs plummeted spectacularly until soon they were back at the price that someone might want to pay to have a nice flower in their garden. Such was the shock that the entire Dutch economy collapsed and entered a depression.

While it is easy to look back at this event and conclude that the Dutch simply went mental, almost 400 years later we still experience economic “bubbles” and the effects are every bit as severe today as they were to the Dutch people of the 17th century. So what are bubbles? How to do they form? How do they grow? Why do they burst?

We’ll answer all of this and more in my five rules of Bubblenomics.

The 1st Rule of Bubblenomics

In order for a bubble to have a chance of starting you need lots of people to really want to buy something – in fact you need more than that. What you really need is for lots of people to really want to buy something more than they did last month. Bubbles are not formed off the back of high demand, they are formed off the back of increasing demand. As we saw in 17th century Amsterdam, the tulip bubble was built on the demand for tulip bulbs increasing… and increasing… and increasing. If the demand had doubled and then stopped there would have been no bubble (just more expensive tulips) and so the first rule of Bubblenomics is simply:

In order to create a bubble, the asset must experience a sustained increase in demand.

Easy enough. I’ll make it clear now though, a sustained increase in demand is not the definition of a bubble and it is not, on its own, enough to create a bubble. To understand how a bubble forms we need a few more rules, which I’ll come on to next.

The 2nd Rule of Bubblenomics

There are many different examples of bubbles in many different areas of the economy. Recent examples are the dot com bubble, which inflated during the late 1990s and burst in the year 2000 and the recent housing bubble, which caused the current global financial crisis.

As well as a sustained increase in demand, all of these bubbles have something else in common – a limitation on supply. Let me explain what I mean by that.

Suppose Mars Bars suddenly become really trendy and the demand for Mars Bars goes through the roof. Mars would quickly respond to this by making more Mars Bars. The increased demand would be met with increased supply, the price would quickly stabilise and no bubble would ensue.

Bubbles only form on something of which there is some kind of limitation on supply, such as the number of shares in a dot com company, tulip bulbs in 17th Century Amsterdam or houses.

Therefore the second rule of Bubblenomics is:

In order to experience a price bubble, the supply of an asset must have a limitation such that increases in demand cannot be easily met by an equivalent increase in supply.

You might be asking why, given the second rule, housing is a good candidate for bubble creation. If demand goes up, we should just build more houses, right? Sadly is isn’t that easy.

Demand for houses is volatile and increasing the supply of houses takes time. Suppose that one year the demand for houses in central London is 5% higher than it was in the previous year – you can’t just quickly meet supply by suddenly building 5% more houses in central London. There is the lack of space, the planning regulations and of course, the fact that it takes a long time to build a house. Because of those things, that increased demand just translates into an increased price.

The 3rd Rule of Bubblenomics

A price increase alone isn’t a bubble though and to understand how a bubble forms we need to look at the third rule. Basic microeconomics tells us that when the price of something goes up, we should expect demand for that something to drop and in most situations that is true. In bubble situations however, the opposite happens. Let’s stick with housing to explain this.

When house prices start to increase, potential buyers see that prices are going up and start piling in order to buy something before prices go up even more, thereby further reducing demand. More people are buying, not because the current price is low – it isn’t – but because they expect it to be higher in the future and although now is expensive, now is still cheap compared with what they expect next month might be. That means that more people want to buy now and current prices increase.

This is what the third rule covers:

The expectation of future price increases fuels current demand

Another way of putting it would be, “Aaarrgh! House prices are going up and up! I need to buy now, before they’re even more expensive! Aaargrh!”

I did make that sound a bit panicky but how many times during the decade before the financial crisis did you hear people talk about having to get on the property ladder before it became unaffordable? If you hear logic like that, it is a clear sign of a bubble in progress.

If you take the first three laws together you can begin to see how a cycle might form – demand keeps going up and with supply constrained, prices increase and as the price increases become sustained, demand goes up further because buying now is better than buying later. Together those three explain a lot but in order to really understand bubbles there are two more laws we need to cover.

The 4th Rule of Bubblenomics

As I mentioned, there are different theories of what caused the Dutch tulip bubble to pop but I suspect it had something to do with the availability of funds. That is, people simply ran out of things to sell  in order to buy tulip bulbs – after all, once you’ve sold your house, you’re pretty much done.

The equivalent in a housing bubble is how much someone is willing to lend you in order to buy a house. A bubble can only keep inflating when buyers have the access to funds to sustain that inflation. The housing bubble that caused the recent, global financial crisis is a perfect example. As prices increased, banks just responded by lending more money.  If the banks had said, “We’ll only lend 80% of a home’s value and that lending can be at max, three times your income”, the bubble would never have happened. They didn’t though. As prices increased, bank lending just increased to further inflate the bubble.

This is the fourth rule of Bubblenomics:

Inflation of a bubble requires someone to keep providing the air

The 5th Rule of Bubblenomics

Don’t worry, this is the last one and it is the simplest one of the lot. The first four rules dealt with how bubbles form and grow but they don’t explain how they burst. What I am calling the 5th rule of Bubblenomics is known in economic circles as Stein’s Law, after the late American economist, Herbert Stein. It says simply this:

If something can’t go on forever, it will stop.

Bubbles see prices increase dramatically and as we have seen, the price increases are self-sustaining for a while. The reality though, is that the price of something can’t go on increasing faster than people’s income forever. At some point, people either won’t want to buy it, don’t have enough money to buy it or can’t borrow enough money to buy it. That much is inevitable – if something can’t go on forever, it will stop.

As the Dutch saw in 1637 and the world saw in 2008, when a bubble stops the result can be catastrophic. So, it should be obvious to everyone that we want to prevent bubbles, right? Right. It should but clearly it isn’t. Just look at the UK government’s “Help to Buy” scheme, which even Vince Cable pointed out would do little more than create a new housing bubble.

He was of course quickly silenced by George Osborne but let’s remember that Vince is an extremely well-qualified economist and George has an undergraduate degree in history.

Apparently a degree in history that didn’t cover the Dutch Tulip Bubble of 1637.

RedEaredRabbit

The Popularity Paradox

This week I’ve been pondering an apparent paradox: Given the fairly disastrous economic achievements of the current government, how in the world are they able to remain so popular in the polls?

Part of this is surely a lack of confidence in the opposition but even so, I don’t think that is enough of an explanation. The polls are not just saying that a lot of people still prefer the government to the opposition – the polls are saying that a lot of people actually trust the government on economic policy. This is The Popularity Paradox – the fact that the government can be hugely unsuccessful and still retain a surprising level of popularity. This post is my attempt to explain that apparent paradox.

Part I: The First Rule of Politics

The first thing we need to do is break our association between political success and political popularity. Democracy is far from an ideal system – the first rule of politics isn’t “Make things better!” The first rule of politics is “Win the next election!”

Because of this, the popularity of a policy is far more important than its success – the primary goal of government policies is to achieve popularity. You can see this in the way that governments deal with taxes. Sometimes increasing taxes would be sensible but governments know that increasing them is a vote loser, so they don’t get increased or they get increased in strange areas that they hope people won’t notice. Similarly they know that tax cuts are popular so a government might cut income tax before an election, even if it makes no economic sense for it to do so. Popularity is everything.

Do you think the trucks hauling, “Illegal Immigrants Go Home” signs were aimed at illegal immigrants? Was the government really expecting illegal immigrants (who they tell us can’t speak English anyway) would just see these trucks, pack their bags and leave? No. The message on those trucks was not aimed at illegal immigrants at all – it was aimed at voters. It was an attempt to boost popularity for the government by convincing people that illegal immigrants were a huge problem and that the government was implementing a tough solution.

Will this stunt result in fewer illegal immigrants? I can’t see how, but that was never its aim. The aim was popularity and whether or not it actually ends up resulting in fewer illegal immigrants is by the by.

Popularity is not achieved through success. Popularity is achieved by convincing people that there is a problem and then telling them how you’re going to solve it. That brings me nicely on to my next point.

Part II: Partial Problem Solving

Let’s take a look at a generic process for solving a problem. It might look a bit like this:

  • You define the problem you wish to solve
  • You find the underlying causes of the problem
  • You design a solution to address the problem
  • You state clearly how you will measure the solution’s success once it is implemented
  • You implement the solution
  • You measure how well the solution performs against your pre-defined criteria
  • You design and implement improvements to the solution and reassess against your pre-defined criteria (repeat this as necessary)

You might be wondering why I’m boring you with this. Well, one way of looking at a government is as a group of people we put in charge to solve problems in our society. In order for people to have trust in a government, they need to understand both the problems that the government is trying to solve and the solutions they are using to solve them.

Let’s look at an example from the current government:

  • Problem: Immigration is too high and unaffordable in its current state
  • Underlying causes: Immigrants are arriving in huge numbers, taking jobs from British citizens and claiming massive sums in benefits
  • Solution: Clamp down on non-EU immigration. Hold a referendum on EU membership so we might soon be able to clamp down on immigration from within the EU too.

Let’s look at another example:

  • Problem: The UK’s economy is weak because of high government spending
  • Underlying Causes: The previous government went on a spending spree that was unaffordable
  • Solution: We need to immediately reduce government spending.

In both of these cases the government clearly defined the problem and the underlying causes and then clearly set out the solution. Both of these policies were popular with a lot of people. Let’s remember though, the seven steps of problem-solving that I outlined above. The government is only performing four of the seven steps. Let’s look at the list again, this time with the steps the government is doing underlined:

  1. You define the problem you wish to solve
  2. You define the underlying causes of the problem
  3. You design a solution to address the problem
  4. You state clearly how you will measure the solution’s success once it is implemented
  5. You implement the solution
  6. You measure how well the solution performs against your pre-defined criteria
  7. You design and implement improvements to the solution and reassess against your pre-defined criteria (repeat this as necessary)

In the second example I gave, the government has spent three years unwilling to adapt a policy that has not even got close to solving the problem of a weak economy. A much better way of doing things would be to admit that the initial policy wasn’t working and adapt it. After all,  the economy is complicated and it is unreasonable to expect every policy you start off with to be perfect and never require adapting. Willingness to adapt a policy based on how well it performs is essential when trying to solve a complex problem.

Those missing steps might help to explain why the government’s solutions are unsuccessful. To understand why they are popular however, we need to look at something I’m going to call The Ignorance of Crowds*.

Part III: The Ignorance of Crowds

When we vote, we are expected to assess the relative merits of a huge number of different policies across many different areas of government. We need to determine what the best policies are in economics, health, education, foreign policy, crime etc etc etc. An economist might be an expert on monetary and fiscal policy but lack the knowledge to make a good judgment on education policies. A teacher might be an expert in education but lack the knowledge of the relative merits of sanctions vs military intervention in Syria**.

A small number of people are experts in one area. An even smaller number are experts in two. I doubt anyone is an expert in more than three. You can see why this is a problem in a situation where a crowd of people needs to each, individually pass judgment on a wide range of complicated subjects.

But why is this important in understanding why a policy can be simultaneously unsuccessful and popular? Have a look again at the steps of the problem solving process that are highlighted (the ones the government is doing) and those that are not. It is quite easy for a non-expert to understand a clearly defined problem. It is also quite easy for a non-expert to understand a clearly defined solution. However it is much harder for an non-expert to assess whether or not a policy is actually succeeding.

So the government defines a problem that the crowd understands (e.g. debt is too high) and defines a solution that the crowd understands (e.g. spending must be cut) but unless an individual has some level of expertise in that area they are forced to rely on the reports of third parties to know whether or not that policy is working. This would not be such a bad thing if the third parties took time to carefully explain how they had reached their judgments so that they could be understood by non-experts but that’s very rare because the third parties from whom people get this information are of course, the media and the politicians themselves.

The Ignorance of Crowds says that as non-experts we can understand a problem that is presented to us and we can understand a proposed solution but it is very hard for us to know how successful that solution actually turned out to be. That means the definition of the problem and the definition of the solution are far more important factors in determining a policy’s popularity than its success.

This explains why the government only worries about certain steps in the problem solving process. The things that make you popular are clearly stating the problem you wish to solve and clearly stating how you want to solve it. Whether it works or not is almost by the by.

Part IV: Phantom Problems

So we’ve looked at how a problem should be solved and seen how and why the government doesn’t do things like that. We’ve seen that a government can take advantage of The Ignorance of Crowds by giving the appearance of solving problems that they are in fact not solving at all and we have seen that solving problems is not their main concern in any case. There is though, another reason for that gulf between popularity and success and this one is far worse than anything I’ve mentioned so far.

In the set of steps for solving a problem that I outlined, you start by defining the problem, then working out the underlying causes and then defining the solution. The government does not do this. What the government does is nothing less than scary.

The government starts with the solution – that is, the policy that they want to implement. They then work backwards to come up with a “problem” that they can use to justify that solution.

Look at the examples I gave:

  • Problem: Immigration is too high and unaffordable in its current state
  • Underlying causes: Immigrants are arriving in huge numbers, taking jobs from British citizens and claiming massive sums in benefits
  • Solution: Clamp down on non-EU immigration. Hold a referendum on EU membership so we might soon be able to clamp down on immigration from within the EU too.

Now, if you were to start at the problem end you would never even get as far as defining this as a problem. Immigration has a clear net benefit to the UK. Immigrants contribute to economic growth, don’t take jobs away from non-immigrants and take less on average than non-immigrants do in benefits. We are better off with immigration than we would otherwise be. The only way you can arrive at the problem that the government defines is by starting from the solution you want to implement (I don’t like foreigners, let’s get rid of them) and then work backwards to define a problem.

This is an example of what I call, a Phantom Problem – that is, a problem that is scary, doesn’t really exist and has been made up purely to justify the “solution” you want to implement.

Let’s look at the other example:

  • Problem: The UK’s economy is weak because of high government spending
  • Underlying Causes: The previous government went on a spending spree that was unaffordable
  • Solution: We need to immediately reduce government spending.

The government dislikes public spending. Not, because it caused the financial crisis though, (it didn’t) but because government spending is paid for through taxes and they like low taxes. After all, taxes are a key instrument through which wealth is distributed from the rich to the poor. The government doesn’t like taxes.

But, whether or not you support lower taxes is irrelevant. The fact is that the financial crisis wasn’t caused by public spending – it was caused by irresponsible bank lending. “The UK’s economy is weak because of high government spending” is an example of a Phantom Problem.

Summary

Partial Problem Solving explains why government policies are often unsuccessful. The Ignorance of Crowds explains how the government makes unsuccessful policies popular. The phenomenon of Phantom Problems allows a government to arbitrarily create policies around their own ideals that have no real basis for existence. Unsurprisingly, a solution that addresses a Phantom Problem will almost always do more harm than good. We might turn away immigrants that would otherwise have made everyone better off. We might implement spending cuts that further harm an already weak economy rather than strengthening it.

These things together explain how our government can be far more popular than the success of their policies would merit and The First Rule of Politics explains their motivation for doing it. It’s a pretty sad state of affairs but it does at least show that The Popularity Paradox is not really a paradox at all. It’s simply the logical result of a government that is adept at exploiting the weaknesses of the democratic system.

So – benevolent dictatorship, anyone?

RedEaredRabbit

* I Googled “The Ignorance of Crowds” and see that different people have already used this term for different meanings. I am using it purely as the definition I give here and not referring to how anyone else might have used it. As Humpty Dumpty said,  “When I use a word, it means just what I choose it to mean — neither more nor less.”

** I’m not being snooty here –  I count myself among the ignorant. That is the reason I generally avoid education or foreign policy or a whole bunch of other things on this blog. Like anyone else, I am mostly ignorant of most complicated things.

Not Learning From Our Mistakes

Over the last few years on this blog, I have often talked of the importance of understanding the problem. That is you can’t properly solve a problem unless you understand what’s causing it.

For example, what caused the financial crisis? If you want to prevent a reoccurrence, you need to understand what caused it and make sure you put something in place to prevent the same mistakes being made in the future.

The government pedals the story that the financial crisis that affected the whole world was caused by the irresponsible spending of the previous Labour government. I’ve written in detail about why that’s a fallacy here but I’ll summarise it briefly:

The banks started lending higher and higher loan-to-value mortgages to people wanting to buy houses. In older times the banks would have worried about house prices going down but house prices had not gone down for so long that banks forgot about those risks. Borrowers were able to take on bigger and bigger mortgages relative to their wealth, which in turn led to a huge increase in house prices. The huge increase in house prices led banks to lend even more irresponsibly in order to provide the now even more unaffordable mortgages to borrowers. That led to further increases in house prices. Etc. etc.

By the time the banks realised they’d made a bubble and that bubble was about to burst it was too late. Lots of people couldn’t make their mortgage repayments all at once. The banks had started by lending the money they held in savings but as the bubble took off, the money that they held in deposits wasn’t enough to finance the mortgages they wanted to give so they borrowed more and more in order to lend it out again. When the homeowners were unable to make their repayments to the banks, the banks were unable to make their repayments to each other. Like a house of cards everyone became insolvent and the governments of the world had to take on a lot of debt to bail them out. The financial crisis was upon us.

This is how house prices in the UK have compared with the median wage since 1997:

UK house prices vs median wage

UK house prices vs median wage

In the ten years running up to the financial crisis the average house price in the UK almost trebled and wages were not going up anything like that amount. This was the result of irresponsible lending and it was happening all over Europe and the US.

But now forget this for a moment and suppose that you didn’t understand what caused the financial crisis. Put yourself in the shoes of a government minister who has spent the last five years marketing the argument that the crisis had nothing to do with the banks’ private lending. Suppose instead you had put a huge amount of marketing effort into perpetuating the falsehood that the financial crisis was all down to the public spending of the previous government.

I don’t think I’m asking you to make a huge leap of faith by accepting that you that if you’d put everything behind that wrong assertion it’s quite possible you’d have come up with the wrong solutions to the problem.

Throughout his time in government, George Osborne has frequently appeared with a brand new, broken lightbulb taped to his forehead. The latest example is called his “Help to Buy” scheme. In this scheme, the government will encourage banks to offer high loan-to-value mortgages by providing guarantees for them in the case that the borrower defaults.

Yes. Read that last sentence again. That is really what they want to do.

When the financial crisis hit, the banks quickly changed their policy from lending high loan-to-value mortgages to not lending high loan-to-value mortgages, ‘cleverly’ spotting that these had directly caused their insolvency. Our government now wants to bring back this bubble-inflating, crisis-causing system and so much so that it is prepared to offer a tax-payer funded subsidy to the banks to get it going again.

Using public money to subsidise high loan-to-value private mortgage lending is really not a good idea. It is a policy that directly encourages banks to make all of the same mistakes that caused the financial crisis but (and get this) this time the banks won’t be liable and have to ask to be bailed out! This time the taxpayer will just fund the defaults directly! Ace!

When I’ve talked about bad government policy in the past, I’ve often pondered on whether the motivation has been government incompetence or something more sinister. For example, did they cut public spending in an economy suffering from a lack of demand because they didn’t understand that my spending is your income or was it because they saw a chance to evilly create a smaller public sector in order to align it with their own idealisms? Well, who knows?

In the case of the “Help to Buy” scheme though, I can really see no possible motivation, good or evil, for pursuing such a terrible strategy. In the past we could have argued that they were being clever and devious but not any more.

“Help to Buy” simply shows that they have no idea what they’re doing.

RedEaredRabbit