12 August 2013

Is Stephen Fry right about Russia and the Winter Olympics?

In an open letter to David Cameron, Sebastian Coe and others, Stephen Fry has called for a “absolute ban on the Russian Winter Olympics of 2014”. His argument is that by turning a blind eye to the persecution of homosexuals in Russia, the Olympic movement would be repeating the mistakes of 1936:

  • “The Olympic movement at that time paid precisely no attention to this evil and proceeded with the notorious Berlin Olympiad, which provided a stage for a gleeful Führer and only increased his status at home and abroad. It gave him confidence. All historians are agreed on that. What he did with that confidence we all know.”

There was a swift and brutal reaction to Fry’s letter – not from Vladimir Putin, but Andrew Pierce of the Daily Mail:

  • “As one gay man to another, I say to Stephen Fry: You should be ashamed for outrageously distorting the facts surrounding the Holocaust. The truth is that Putin is not herding gays into trains and transporting them to concentration camps to be used as slave labour before being gassed to death when they were no longer capable of any meaningful work.”

This is unfair. The comparison that Fry actually made was between Putin’s Russia today and Hitler’s Germany in 1936. The anti-Jewish measures enacted up until that point were deeply unpleasant, but a mere shadow of the horror that was to come.

This is Fry’s description of the situation in Germany at the time of the Berlin Olympics:

  • “[Hitler] banned Jews from academic tenure or public office, he made sure that the police turned a blind eye to any beatings, thefts or humiliations afflicted on them, he burned and banned books written by them. He claimed they ‘polluted’ the purity and tradition of what it was to be German, that they were a threat to the state, to the children and the future of the Reich.”

And this is the parallel he draws with the present-day plight of homosexuals in Russia:

  • “Beatings, murders and humiliations are ignored by the police. Any defence or sane discussion of homosexuality is against the law. Any statement, for example, that Tchaikovsky was gay and that his art and life reflects this sexuality and are an inspiration to other gay artists would be punishable by imprisonment.”

So, despite what his critics might say, Fry is not comparing the Holocaust to a ban on gay pride marches. He is comparing harassment and discrimination with harassment and discrimination. That, of course, still raises questions about whether the scale and intensity of the two situations can be legitimately equated. One also has to doubt whether Russia in 2013 is really on the same trajectory as Germany in 1936.

Then again, the moral case for action doesn't depend on whether the present situation for gays in Russia is as bad as it was for German Jews in 1936, but whether it is bad enough

That, of course, would require one to draw some kind of line – and, having done so, to consider how it might apply to other cases. For instance, Andrew Pierce raises the matter of the 2008 Beijing Olympics, when things in China were also bad enough for the enemies of the Communist government (and still are). Furthermore, if Russia is to be ruled out as an Olympic host as a result of laws which discriminate against homosexuals, then what about those countries in Africa, the Middle East and elsewhere in which homosexuality is banned altogether?

Quoting from the Olympic Charter, Fry calls upon the Olympic movement to act upon its stated principles. The following seems especially relevant:

  • “Any form of discrimination with regard to a country or a person on grounds of race, religion, politics, gender or otherwise is incompatible with belonging to the Olympic Movement.”

Yet if such a principle is to be applied at all, it must be applied consistently.

Tags: Stephen Fry, Russia, Winter Olympics, human rights, China, David Cameron

Social justice
9 August 2013

Heresy of the week: Let’s abolish the summer holidays

Matthew Yglesias does not like school summer holidays. In fact, writing for Slate, he comes across like a warm-weather Ebenezer Scrooge:

What a killjoy! And yet he makes a powerful case. It seems that the summer break is seriously bad news: 

To make matters worse, the impact of educational outcomes is cumulative:

One could argue that the problem is not so much the summer break itself, but the materially and intellectually impoverished home environments of the worst-affected children:

Still, the counter-argument is that reforming the school year would be a surer way of helping these children than trying to improve their home lives (not that these approaches are mutually exclusive). Yglesias also has a riposte to those who say that shorter holidays would cost too much:

A longer school year would be a relatively cheap way of boosting the life chances of the most vulnerable children. After all, no additional buildings would be required – they already exist. Nor would additional staff be required – just the additional hours from the teachers we’ve already got. Moreover, any reduction in educational failure would result in long-term savings to the public purse.

There’d be a further benefit, which is not mentioned in Yglesias’s article. A school year punctuated by shorter, more evenly spaced holidays would mean that instead of grouping pupils by yearly intakes, they could be more easily grouped by half-yearly or even quarterly intakes. This would eliminate the significant disadvantage faced by the youngest pupils in each class. As any nursery or primary school teacher knows, small age gaps can make a big difference in the ability of children to keep up with their classmates.

Summer babies born to the poorest households therefore go through school at a double disadvantage. We should at least think about improving their chances.

Tags: Schools, summer holidays, inequality, educational failure, school dinners

Work and prosperity
8 August 2013

Detroit: this is what happens if you lose the global race

David Cameron likes to talk about the ‘global race’ – by which he means the neverending struggle to stay competitive in a globalised world. ‘Oh, but it’s not a race’, certain sniffy commentators reply – making the rather facile observation that economic competition doesn’t have a finishing line.

That much is obvious, but it's missing the point of Cameron’s analogy. As on the track or the turf, the meaning of the global race is that if you don’t keep up you become irrelevant. The amount of financial and human capital in the world may grow over time, but at any one time it is limited, and with more places for it to go than ever before, the greater the likelihood of some places being left behind.

One such place is Detroit, which filed for bankruptcy last month – the largest American city to have done so (thus far).

A few figures, from Justin Fox of the Harvard Business Review, show just how far Detroit has fallen:

  • “In 1950 the city had more than 1.8 million inhabitants; this year the population will probably slip below 700,000. Providing city services like police protection and garbage pickup across 139 ever-emptier square miles keeps getting more expensive and difficult… Just since 2000, the city has lost 26% of its people, with the white flight that began Detroit's decline in the 1950s long since overtaken by an exodus of middle-class African-Americans.”

While the city is getting more expensive to run, its remaining inhabitants are less able to pay for it:

  • “Those left behind are increasingly those who can't get out — with a per capita income of just $15,261 and 36.2% of the population below the poverty line, Detroit is now by most measures the poorest big city in the country.”

This is remarkable because, as Jay Zawatsky notes in the National Interest, “in 1960… Detroit was the wealthiest city per capita in America among cities with more than two hundred thousand residents.”

From richest to poorest in just two generations, how did such a catastrophe happen?

There are obvious industrial explanations – and few cities are as closely identified with one particular industry than Detroit (a.k.a. Motown). The problems of the major US motor manufacturers in adapting to globalisation are well-documented; but, as Justin Fox argues, the blame for Detroit’s decline cannot be confined to local boardrooms:

  • “...the [wider] Detroit area spawned new businesses… [but] they were all creatures of the suburbs. To an extent unparalleled in any other major American metropolis, private economic activity in metro Detroit came to almost completely bypass the actual city.” 

Fox blames this on the city’s divisive racial politics, which produced a “governing class clueless about and to a certain extent disdainful of economic reality and a regional economic elite with few ties and little loyalty to the region's main city.”

Jay Zawatsky, quoting Mark Steyn, has no doubt as to who he blames – the “malign alliance between a corrupt political class, rapacious public-sector unions, and an ever more swollen army of welfare dependents.” He goes on to note that:

  • “...fully half of what the city owes—$9 billion out of Detroit’s unpayable $18 billion—is the unfunded pension liabilities to retired public employees and those still on the city’s payroll.”

So, were does Motown go from here? Michael Bloomberg, the Mayor of New York, has suggested that Congress "pass a law letting immigrants come in as long as they agree to go to Detroit and live there for five or 10 years, start businesses, take jobs, whatever."  Meanwhile, Detroit’s own mayor plans to abandon some of the city’s neighbourhoods in order to save the rest.

These are last ditch measures. But it all goes to show that while you can’t win the global race, you can certainly lose it.

Tags: Detroit, debt, the global race, competitiveness

7 August 2013

Washington has fallen to the political undead – Westminster must not be next

Scattering nuggets of gossip on his way, Christopher Buckley contributes an eye-opening book review for the New York Times. His theme is Washington’s big money politics:

  • “Anyone who’s lived in Washington for any length of time, listening to the latest candidate for the nation’s highest office thump the lectern and proclaim he is going to change the way we do business in Washington . . . will yawn. We heard rather a lot about all that in 2008. So, has Washington changed? Or as Sarah Palin would put it, ‘How’s that hopey-changey thing workin’ out for ya?’”

The answer to that is not very well, says Mark Leibovich, whose book This Town, gives Buckley plenty to get stuck into:

  • “President Obama’s first year in office was the best year ever for the special interests industry, which earned $3.47 billion lobbying the federal government…”

There always was a lot of money in US politics, but it’s now reaching a whole new level:

  • “‘Over the last dozen years,’ Leibovich writes, ‘corporate America (much of it Wall Street) has tripled the amount of money it has spent on lobbying and public affairs consulting in D.C.’ Alongside this money comes the tsunami of dollars from presidential campaigns. He reports that during the 2012 contest, the so-called super PACs and megadonors pumped ‘upwards of $2 billion . . . into the empty-calorie economy of two men destroying each other.’”

But then comes the most shocking statistic of the lot:

  • “There’s a phrase in journalism-speak called ‘burying the lede,’ which Leibovich appears to do by waiting until Page 330 to cite this arresting figure (previously reported by The Atlantic): in 1974, 3 percent of retiring members of Congress became lobbyists. ‘Now 50 percent of senators and 42 percent of congressmen do.’ No one goes home anymore. Cincinnatus, call your office.”

Instead of going home, these so-called ‘formers’ hang around the corridors of power – an army of the political undead, representing vested interests not the public interest.

Of course, ex-politicians are as entitled as anyone else to make a living – especially those quitting politics before retirement age. Some – like our own esteemed editor – go on to higher and better things. But, the American situation, in which getting on for half of all legislators turn into lobbyists, is deeply problematic.  

The British situation is not nearly as bad – not least because most of our MPs have very little influence while in office and even less afterwards. However, the fashion for increasingly youthful ministers means that ex-ministers are getting younger too – something which goes all the way to the top. Take the example of Tony Blair – Prime Minister at 43, ex-Prime Minister at 54.

Perhaps we should be less interested in the lives that politicians had before they got elected and more interested in what they get up to afterwards. 

Tags: Lobbying, Washington, Westminster, Tony Blair, career politicians

Law and order
6 August 2013

Germany’s unpleasant experiment with legalised prostitution

Warning to readers – today’s post is about the sordid reality of prostitution, not the airbrushed fantasy depicted in some parts of the media.

When a new brothel opened near the German city of Stuttgart in 2009, this – according Spiegel Online – is how the management advertised the venue:

  • “‘Sex with all women as long as you want, as often as you want and the way you want. Sex. Anal sex. Oral sex without a condom. Three-ways. Group sex. Gang bangs.’ The price: €70 during the day and €100 in the evening.
  • "According to the police, about 1,700 customers took advantage of the offer on the opening weekend. Buses arrived from far away and local newspapers reported that up to 700 men stood in line outside the brothel. Afterwards, customers wrote in Internet chat rooms about the supposedly unsatisfactory service, complaining that the women were no longer as fit for use after a few hours.”

In Germany this is legal – and has been since 2001, when the Greens and the Social Democrats voted for a new prostitution law, meant to improve working conditions:

  • “Today ‘a high percentage of prostitutes don't go home after work, but rather remain at their place of work around the clock,’ a former prostitute using the pseudonym Doris Winter wrote in a contribution to the academic series The Prostitution Law. ‘The women usually live in the rooms where they work,’ she added.
  • “In Nuremberg, such rooms cost between €50 and €80 a day, says social worker [Andrea] Weppert, and the price can go up to €160 in brothels with a lot of customers. Working conditions for prostitutes have ‘worsened in recent years,’ says Weppert. In Germany on the whole, she adds, ‘significantly more services are provided under riskier conditions and for less money than 10 years ago.’”

One of the reasons for the decline in pay and conditions is the influx of women from eastern Europe. Official German statistics show that that there is less “human trafficking for the purposes of sexual exploitation” than a decade ago, but not everyone thinks that this reflects reality:

  • “Munich Police Chief Wilhelm Schmidbauer deplores the ‘explosive increase in human trafficking from Romania and Bulgaria,’ but adds that he lacks access to the necessary tools to investigate. He is often prohibited from using telephone surveillance. The result, says Schmidbauer, ‘is that we have practically no cases involving human trafficking. We can't prove anything.’
  • “...the Max Planck Institute for Foreign and International Criminal Law concluded that official figures on human trafficking say ‘little about the actual scope of the offence.’”

So, what’s the solution? To go back to the days when the authorities hounded women off the streets, into police cells and back again? There is another way. In Sweden, they hound the clients, the pimps and the traffickers, not the prostitutes. 

The Swedish approach, so very different from that of countries like Germany and the Netherlands, seems to be having some success, with prostitution now in decline.

Sweden still has a long way to go, of course. But as Pierrette Pape, of the Europe Women’s Lobby, points out, some attitudes can only be changed over the long-term:

  • "Nowadays, a little boy in Sweden grows up with the fact that buying sex is a crime. A little boy in the Netherlands grows up with the knowledge that women sit in display windows and can be ordered like mass-produced goods." 

Tags: Prostitution, legalisation, human trafficking, Germany, Sweden, the Netherlands

5 August 2013

The new era of low growth will change our politics forever

Previously on the Deep End, we’ve explored the idea that the western world has entered a period of permanent low growth.  The latest GDP figures may allay such fears, but it remains to be seen whether anything like a ‘normal’ rate of growth can be sustained without massive amounts of quantitative easing and public borrowing.

In a fascinating piece for New York magazine, Benjamin Wallace-Wells introduces us to the work of Robert Gordon and other ultra-pessimistic economists:

  • “For at least the next fifteen years or so, Gordon argues, our economy will grow at less than half the rate it has averaged since the late-nineteenth century because of a set of structural headwinds that Gordon believes will be even more severe than most other economists do: the aging of the American population; the stagnation in educational achievement; the fiscal tightening to fix our public and private debt; the costs of health care and energy; the pressures of globalization and growing inequality.”

If that were not grim enough, Gordon believes that the previous era in which living standards doubled with every generation is gone forever. The high growth typical of the 20th century was a blip, the product of one-off, never-to-be-repeated transformative events like electrification and the introduction of public sewers.

If he’s right, then the consequences won’t just be economic. That's because rapid growth doesn't only make us richer, it also facilitates and inspires social change. For instance, feminist ideas have been around since the days of Mary Wollstonecraft, but a certain level of material progress was required before traditional gender roles could be permanently transformed:

  • “The labors that housework required in the nineteenth century were so consuming that housewives in North Carolina walked 148 miles a year carrying 35 tons of water for nonautomated chores. It took until the fifties for household appliances to decline so much in price that they were ubiquitous; the next decade was the one of women’s liberation.”

Similarly, the idea of racial equality is not an invention of the 20th century, but it wasn’t until the post-war period that the civil rghts movement could draw upon sufficient support from that hotbed of revolutions – the middle class:

  • “The prospects for African-American employment increased most dramatically during World War II and in the period just after: 16.4 percent of black men held middle-class jobs in 1950; by 1960 it was 24 percent; by 1970, 35 percent. Progressives will often describe the history of social liberation by quoting Martin Luther King Jr.’s line that the arc of the moral universe bends toward justice; the implication is that metaphysics are somehow involved. But this history has also taken place during unique economic times, and perhaps that is not coincidence.”

Martin Luther King also said “I have a dream”, echoing and expanding the idea of the “American Dream”. But as Wallace-Wells points out, this latter phrase was only coined in 1931 – i.e. once Americans had come to expect continual improvements in their prosperity. 

To foresee an end to rapid growth is not to predict a reversion to a new dark age – but rather an end to the assumption that “things can only get better”.

The end of economic optimism will have a profound impact on our political development. For instance, if voters stop believing that growth will automatically deal with our debts, then that's bad news for the borrow-and-spend politics of the left. But the right will also need to rethink its message – especially on the issue of inequality. If the cake stops getting bigger, then there will be a lot more concern about the size of the slice taken by the rich.

These shifts in opinion are already underway – as shown by the public anger directed at bankers on the one hand and welfare claimants on the other. In other words, when new opportunities are hard to come by, it's not liberty or equality that people care most about, but fairness.

Tags: Economic growth, Robert Gordon, social change, feminism, civil rights, the American dream, the politics of fairness

Faith and community
2 August 2013

Heresy of the week: Atheism has its heretics too

You might think that being an atheist is pretty straightforward – all you have to do is not believe in God (or gods) and you’re in the club. But as with theism, atheism comes in different forms where the central idea is bundled up with other essential ideas. If you dissent from these additional articles of faith then you are definitely not in the club, i.e. atheism has its heretics too.

In the English-speaking world, the dominant form of intellectual atheism is not only atheist in its essentials, but also neo-Darwinist and humanist. Thus when the distinguished American philosopher Thomas Nagel published an entirely secular critique of neo-Darwinism, he caused a bit of a stink. The Dawkins brigade were somewhat less than thrilled and it was named as the ‘Most Despised Science Book of the Year’ in the Guardian

In a book review for the New York Times, Nagel introduces us to the thoughts of a fellow heretic (albeit one he has his own disagreements with) – the British philosopher John Gray, who though an atheist is not a humanist:

  • “‘In the most general terms,’ he tells us, ‘humanism is the idea that the human animal is the site of some kind of unique value in the world.’ ‘A related aspect of humanism is the idea that the human mind reflects the order of the cosmos.’ ‘A third aspect of humanism is the idea that history is a story of human advance, with rationality increasing over time.’
  • “Gray rejects all three of these beliefs, along with the pretension of humanism to offer a scientifically respectable replacement for religion: ‘...there is no hierarchy of value with humans somewhere near the top. There are simply multifarious animals, each with its own needs. Human uniqueness is a myth inherited from religion, which humanists have recycled into science.’”

This is very naughty of Mr Gray, pursuing orthodox atheism to its logical conclusions is not something one does in polite society. And in any case, does he have anything to put in place of humanism?

As a matter of fact, he does. It’s set out in his book The Silence of Animals, a philosophy which Nagel summarises as follows:

  • “ alternative of pure contemplation that just lets the world be. That is the meaning of the title: we are invited to become more like other animals, freed of the perpetual need for commentary, understanding and transcendence.”
  • “…Gray thinks the belief in progress is fueled by humanists’ worship of ‘a divinized version of themselves.’ To replace it he offers contemplation: ‘Contemplation can be understood as an activity that aims not to change the world or to understand it, but simply to let it be.’”

But this is where Gray’s own logic runs into the buffers. You see, if we are supposed to just let the world be, to accept nature as it is, then surely that means we must also accept human nature as it is (humanity being an entirely natural phenomenon according to Gray). Yet, it is very clearly not in our nature let the world be – or to free ourselves “of the perpetual need for commentary, understanding and transcendence”. 

We are not like the animals. Something within us is always looking for ultimate explanations. We can’t simply put it away, it is part of who we are. 

It’s almost as if it were there for a reason.

Tags: Atheism, philosophy, neo-darwinism, humanism, Thomas Nagel, John Gray

Work and prosperity
1 August 2013

British workers have done their bit for recovery, now British capitalists must do the same

The news that the British economy is growing again did not please everyone. Left-leaning economic commentators tried, but failed, to conceal their disappointment – desperately insisting that what’s happening is the wrong kind of growth.

At so early a stage in the recovery it is surely too soon to come to any conclusion, positive or negative. Instead, we’d do better to look back at the last few years – and try to provide some context for current developments.

In a guest piece for the Economist, John Van Reenen of the London School of Economics presents an overview of the the British economy since the crisis of 2008. The first thing he emphasises is the sheer depth of the recession we’re only just shaking off:

  • “The ONS recently revised their figures of national output since the recession. It made grim reading. Popular attention focused on the economically irrelevant statistical revision that abolished the ‘double dip recession’. The brute fact is that UK GDP is estimated to be 3.9% below where it was pre-crisis in 2008 rather than 2.6% as previously thought. We are as a national economically around 14% smaller than we should be based on past trends. ”

Van Reenen describes the period since the recession as the “worst recovery for 100 years”, but notes the disconnect between GDP and employment trends:

This, he says, is a “testament to the flexibility of the UK labour market”: 

  • “Real wages have fallen by about 9% since 2008 due to three decades of reform that have simultaneously kept the pressure up on benefit claimants and weakened the ability of trade unions to maintain real wages even during recessions, as happened in the past. But although some job is better than no job, miserable wages are not the path to long-run economic health.”

A less miserable way of looking at the situation is to recognise that British workers have done their bit for the recovery. Unfortunately the same cannot be said for the owners of capital:

  • “Business Investment is now 30% lower than what it was in 2007. This capital shallowing is reflected in the productivity puzzle: UK GDP per hour has not recovered as it did in previous recessions. A big part of this is because low capital per worker means low output per worker.”

A 30% drop is a truly staggering figure. Van Reenen blames it on dislocations within the banking system and cuts to public infrastructure investment. These have certainly played their part, but there must be more to it than that.

Extreme pay restraint on the part of the workforce, plus a big fall in the trade weighted value of Sterling amounts to a double boost of internal and external devaluation. Yet despite this shot in the arm, investment and exports have remained anaemic.

The bog-standard leftwing response is to call for more stimulus, for instance, through a cut in VAT as advocated by the Shadow Chancellor. Rather embarrassingly for Mr Balls, consumption seems to have recovered without the help of his debt-funded temporary tax cut. In any case, it’s investment and exports, not consumption, that is the challenge here.

The bog-standard rightwing response is to call for supply-side reforms. In particular, it is argued in some quarters that employment rights should be weakened or ‘voluntarily’ surrendered in return for company shares. Whatever the merits of some of these proposals, the overall emphasis is economically and politically misjudged. British workers are the heroes of the recovery not the villains – and should be recognised as such.

The real reason why investment has been so weak since the recovery is that it was weak before the recovery. For a while this was disguised by the availability of cheap credit and the abundance of get-rich-quick schemes to pump it into, but when the flow of credit was turned-off the bubbles deflated. By privileging speculation over genuine investment, Gordon Brown’s boom-and-bust policies did lasting damage to the culture of enterprise in this country.

We all know that easy money makes for bad government, but, in much the same way, it makes for bad business too.

Tags: Economic policy, growth, wage levels, investment, speculation, internal devaluation, British workers, Gordon Brown

Work and prosperity
31 July 2013

Banks would behave better if more of their own money was at risk

Two weeks ago the Deep End featured John Lancaster on the PPI mis-selling scandal. In a new article for the London Review of Books, he adds a twist to the tale:

  • “In their response to last year’s budget, the OBR included a modest boost to ‘household consumption growth’, i.e. people spending money, thanks to the effect of PPI repayments. The OBR’s assessment of Osborne’s other policies showed no effect on household consumption growth. So the OBR reckons that the PPI repayments have done more to help the economy than all the other stuff the chancellor is trying to do put together!”

Things have moved on since, as demonstrated by the latest GDP figures. Still it is extraordinary that  before the start of this recovery (if that is what it proves to be), PPI fines were a significant source of growth –  “a boost of 0.2 per cent to GDP” according to one estimate. Lancaster notes the irony:

  • “That’s really amazing. The banks are so bad at their primary function, lending money, that it’s better for the economy if they pay billions of pounds in fines to the customers they ripped off.”

This Government, unlike its predecessor, has not been slow in reforming our deeply dysfunctional banks; but, while acknowledging what has been done so far, Lancaster argues that the culture of banking is so rotten that the very fundamentals of the system have to change: 

  • “One of the four biggest UK banks literally had a priest in charge… [Yet] it was while the Anglican minister was running things that HSBC undertook criminal actions which led to a fine of $1.9 billion… There’s no reason to think that an emphasis on ethical banking, from the head of the company down to the troops, is likely to have any effect.”

The argument here is that banks are just too big and complicated to allow top-down management – however saintly – ensure good practice. Something more pervasive is therefore required:

  • “What would be the simplest, crudest and most reliable way of making the banks safe?”

Drawing upon the work of Anat Admati and Martin Hellwegg, Lancaster’s answer is that the banks should carry more equity – meaning that their assets should exceed their liabilities by a greater margin than is currently the case. This would have an obvious cushioning effect against insolvency, but even more importantly it would bring about cultural change:

  • “There are a number of reasons why banks dislike the focus on equity, but the main one is that it reduces their ability to gamble with other people’s money. It is much more efficient, in financial terms, to borrow money on the liability side of the balance sheet, and bet it on the asset side, and keep the profits for yourself. If the bets go wrong, most of the money you lose is somebody else’s and then – if you’re a bank – you get a bailout and are back in business. If you have higher levels of equity, however, more of your own money is at risk. You can lend as much: it’s just that you’re lending it at your own risk.” 

Would higher equity requirements mean less lending – for instance, to small businesses? Lancaster believes not, because loans to customers are on the asset side of a bank’s balance sheet. However, the banks still need to find the money they lend out. So, if they can’t borrow as much (loans to banks being on the liability side) then they need to attract more equity investment and/or reduce their running costs. The most obvious way of achieving the latter is to cut salaries and bonuses.

No wonder the bankers aren’t so keen.

Tags: Banking reform, PPI mis-selling scandal, bankers' bonuses, skin in the game

Work and prosperity
30 July 2013

What will we do when robots take our jobs? Let’s remember what happened last time

Writing for the Wilson Quarterly, Daniel Akst gives voice to a growing concern:

  • “...has the day finally come when technology will leave millions of us permanently displaced?
  • “Judging by the popular press, the answer is yes, and there is plenty of alarming data leading some people to support that view. Between January 1990 and January 2010, the United States shed 6.3 million manufacturing jobs, a staggering decrease of 36 percent. Since then, it has regained only about 500,000.”

Of course, this isn’t all down to technology – globalisation has played its part too. However, while the costs of shipping have gone up (and those of outsourcing have become more apparent), the costs of computing and robotics continue to go down. The fear, therefore, is that technological progress will push more people out of a greater range of jobs than ever before. 

How will we cope? Instead of trying to predict the future, Daniel Akst looks back to the past, to a previous wave of automation in post-war America:

  • “Automation was a hot topic in the media and among social scientists, pundits, and policymakers. It was a time of unsettlingly rapid technological change, much like our own. Productivity was increasing rapidly, and technical discoveries—think of television and transistors—were being commercialized at an ever more rapid rate. Before World War I, it had taken an average of 30 years for a technological innovation to yield a commercial product. During the early 1960s, it was taking only nine.”

When the greatest economic minds of the era tried to predict the long-term consequences they usually got it completely wrong. For instance, this is what the economic historian Robert Heilbroner said about Herbert Simon – ‘a manifold genius who would go on to win the Nobel Prize in Economics’ – when the latter predicted that the average family income would reach $28,000 by the early 21st century:

  • “He has no doubt that these families will have plenty of use for their entire income... But why stop there? On his assumptions of a three percent annual growth rate, average family incomes will be $56,000 by the year 2025; $112,000 by 2045; and $224,000 a century from today. Is it beyond human nature to think that at this point (or a great deal sooner), a ceiling will have been imposed on demand—if not by edict, then tacitly? To my mind, it is hard not to picture such a ceiling unless the economy is to become a collective vomitorium.”

The idea that consumer demand might have a limit now seems absurd, and Simon rightly dismissed it by declaring his “great respect for the ability of human beings” to spend money “without vomiting”. However, his own predictions were also way off-beam:

  • “Nobody at the time foresaw the coming stagnation of middle-class incomes. His estimate of the average family income in 2006 translates into more than $200,000 in current dollars.”

Instead of a future in which people earned more money than they could spend, things turned out the other way round – or at least they did among those on lower-to-middle incomes. The productivity gains brought about through automation did indeed make us richer overall, but they did so unevenly:

  • “Like trade, automation makes us better off collectively by making some of us worse off. So the focus of our concern should be on those injured by the robots, even if the wounds are ‘only’ economic.”

In the post-war period, redistribution, especially through welfare payments, was the answer to the impact of automation on jobs. Akst believes that this must continue to be the case:

  • “The issue, in other words, isn’t technological but distributional—which is to say political. Automation presents some of us with a kind of windfall. It would be not just churlish but shortsighted if we didn’t share this windfall with those who haven’t been so lucky.”

The trouble is that the post-war expansion of welfare was a disaster, creating a dependent and dispirited underclass. It cannot be the answer to the new wave of automation now threatening the livelihoods of middle income earners.

In any case, our public finances cannot take the strain – far from extending welfare up the income scale, governments are withdrawing it. Daniel Akst is right when he says that “the robots will surely keep coming”, but the same does not apply to handouts for the middle class.

Tags: Jobs, automation, robots, globalisation, redistribution, welfare

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