Why do the wealthy and well-connected tend to win so many political battles? Because they are wheels

The squeaky wheel gets the grease and losers cry louder than winners sing. British politics certainly bears out the truth of those old observations.

Just two months ago we witnessed a backlash against Philip Hammond’s hike in national insurance for the self-employed, which was designed to bring the levy closer into line with the tax paid by employees. This resulted in a spectacular and humiliating U-turn for the Chancellor within days.

That fiasco came hot on the heels of a noisy revolt against business rates reevaluations and a partial retreat in the Budget (a retreat which is set to cost taxpayers £435m). That affair was also a reminder that, for a quarter of a century, cowardly governments (of all stripes) have dodged a revaluation of council tax bands in England out of fear of an eruption of opposition from the Home Counties.

Then, just last week, there was a coordinated push back from Tory MPs against a new funding formula unveiled by the Government last year for the distribution of central funding for local schools. One does not have to be Mystic Meg to foresee where this one ends.

All the reforms above have two things in common. First, they would make for a more equitable raising and distribution of resources. Second, they would create more winners than losers around the country. But the losers shout louder than the winners. And the losers, in the main, are satisfied: the squeaky wheel is lubricated.

In all cases, ministerial foolishness or cowardice made reform harder. Severe cuts to real terms per pupil school funding over the coming years accentuates the pain of the transition to the new formula for individual schools. The business rates revaluation was delayed for nakedly political reasons, making the eventual re-rating more painful (for a minority of firms) when it eventually came. The same applies, albeit on a grander scale, in the council tax saga. Hammond’s national insurance reform probably ought to have been done in tandem with a wider set of reforms to address the conditions of self-employed workers.

Yet there’s a larger dysfunction here. Even without those ministerial missteps there would have been significant, possibly insurmountable, opposition. Why? Why do reforms that would benefit more people than the numbers who lose out get shot down, watered down or never even attempted? 

Media framing is a major part of the problem. Newspapers run lobbying campaigns championing those who stand to lose out from a particular reform. They never run campaigns on behalf of those who stand to benefit. The broadcasters tend to take their lead from the press. And the resulting media cacophony persuades ministers to retreat.

Yet the media is not the only factor. Lazy MPs must be culpable too. In all these cases – school funding, self-employment tax, business rates, council tax – parliamentarians ought to be defending or pushing for reforms that would benefit the vast majority of the own constituents.

Where are the MPs from all those areas that will benefit speaking out on behalf of the more equitable school funding formula? Where are the political representatives from less well-off regions pushing for the original business rates revaluation? Where are the MPs, with their tens of thousands of conventionally employed constituents, defending the national insurance equalisation with the self-employed? Why are parliamentarians not lobbying for council tax revaluations, given the fact that, arithmetically, most of their constituents would benefit? 

Economics is often unhelpfully and inaccurately framed as a zero sum game, where one person’s gain is another person’s loss. Think of how Donald Trump talks about trade, or the way Ukip and now the Conservatives talk about immigration. But when it comes to reforming an unequal tax or spending system the zero sum logic actually holds. And the person who gains tends not to be the poor but the wealthier, the more powerful and the better connected.

The pessimistic view is that because potential winners are usually dispersed and disorganised, and because people generally bank gains without gratitude, the incentives of politicians will always be to listen to the angry and organised losers. Perhaps that’s true. But it would be nice to put it to the test rather more often.

The first step is for the silent wheels to start squeaking too.

#counciltax #businessrates #zerosumgame #newspapers #nationalinsurance

An economics lesson that the Borough Market terrorists failed to grasp

It’s unlikely that the pathetic psychopaths who ran amok in Borough Market randomly stabbing Londoners on Saturday night gave any thought to the economic significance of their target. But the city’s foodie hub is a powerful case study in the phenomenon of retail clustering.

From one perspective, it’s odd that so many artisan grocers and luxury delicatessens would want to cram themselves into one relatively small place beneath the railway arches of a busy London train station. Competition is ferocious. Business rates are punitively high.

Why not spread out across the capital? Sadly, there are no artisan delicatessens where I live in the unfashionable suburbs of south London, even though there are plenty of folk with a sufficiently high disposable income to shop in them. If these shops dispersed they would have much less competition, a higher share of a reasonably large local market and lower overheads.

But there are two forces at work on retailers, one centrifugal and centripetal. The centrifugal force is the desire to reduce local competition by striking out alone. The centripetal force is the urge to benefit from higher footfall by clustering.

If a retailer is selling a good or service that is considered a luxury rather than a staple, the clustering force often prevails. Clustering in Borough Market has created a world-class foodie destination and customers are sucked in from far and wide. People won’t travel into London Bridge to buy a pint of milk, but they will to buy a chorizo roll from Brindisa or a Lemon Chiffon cake from Konditor & Cook.

The same applies if a purchase is relatively infrequent, which is why one often finds two rival retailers flogging washing machines, or sporting goods equipment, sitting right next to each other in out-of-town retail parks. More competition, yes, but also more customers.

Whole areas benefit from clustering through positive spill-overs. People shop for their artisan cheese and their cured ham in Borough Market and then enjoy one of the many high-end local restaurants or independent coffee shops. They stroll by the river and drink in one of the pleasant Thames-side pubs. It’s a day out, often turning into a night out too.

Clustering, economies of agglomeration, network effects and positive spill-overs, on a larger scale, explain cities themselves. There are spill-overs galore in any big city.

To expand on the example at hand, wealthy City workers cross London Bridge to have lunch in Borough Market. Doctors come from nearby Guy’s Hospital for a post-shift drink. Tourists saunter over from the South Bank and vice versa. Firms buy floor space in the Shard, despite the high rents, because of the local amenities, not least the famous foodie hub next door.

This clustering is what makes cities a prime target for terrorists. They seek to leverage the murderous rage of their risibly small band of fanatics by assaulting a place where they know there will be lots of innocent victims. They seek an iconic location so they can create a mass psychological impact through their despicable violence.

But clustering is also why cities are so resilient, and why the waters of commerce tend to close over the economic damage they cause surprisingly quickly. There is so much capital invested in cities – the refurbished shop, the new office block, the renovated train station – that people have to keep using it to pay the bills. There’s economic momentum. Londoners are grieving for the victims of the London Bridge massacre but they aren’t “reeling”, mainly because they haven’t got time to reel.

And the way to limit the economic damage that terrorists seek, in part, to create is not to panic, but to carry on spending and enjoying all the wonderful experiences a city has to offer. As Rudolph Giuliani urged New Yorkers immediately after the 9/11 attacks to “buy a pizza, take the kids to the park, see a show”, the advice in London should be: visit Borough Market.

Don’t be alarmed, as the Mayor Sadiq Khan rightly told Londoners and the capital’s hundreds of thousands of visitors at the weekend. And only a malevolent fool – or the President of the United States – would urge otherwise.

#BoroughMarket #clustering #LondonBridge #terrorism

The curse of politicians’ illusory superiority

In 1995 a 44-year-old man called McArthur Wheeler set out to rob two banks in Pittsburgh. In preparation for the crime he smeared his face with lemon juice.

Wheeler’s bizarre logic was that since lemon juice can be used as a kind of invisible ink on paper, the liquid would also render his face invisible to the banks’ security cameras.

After the robbery police retrieved the surveillance tape and gave it to a local news channel. Wheeler was duly identified and then arrested. During his interrogation Wheeler was confused over how his cunning plan to avoid detection had failed. “But I wore the juice,” he reportedly mumbled.

Wheeler’s delusions over his own competence as a criminal inspired two US psychologists, David Dunning and Justin Kruger, to run some experiments on undergraduates at Cornell University in New York. They asked students a series of technical questions on grammar and logic and asked them to estimate their scores and also estimate their rank relative to their peers.

The results suggested that some students who performed badly not only considered themselves to have done well – but also believed themselves more competent than those who performed considerably better.

Thus was established the “Dunning-Kruger effect”: the cognitive bias of illusory superiority. People who rate their talents highly sometimes just don’t grasp how incompetent they truly are.

“This is more work than in my previous life,” Donald Trump told reporters from Reuters last week in an interview to mark 100 days of predictable fiasco from the property tycoon’s White House. “I thought it would be easier. This is actually more work.” Or as the former Apprentice personality might have put it: “But I wore the juice.”

One does not have to look far in politics to find the Dunning-Kruger effect. David Cameron was once asked why he wanted to be prime minister and replied: “Because I think I’d be rather good at it.” Before the 2015 general election he solemnly warned that Britain faced an “inescapable choice – stability and strong Government with me, or chaos with Ed Miliband”.

Surveying the chaotic British political scene in 2017 many have begun to question whether this was an entirely accurate prognostication. But not Cameron. Speaking in Bangkok last week Cameron said he thought he did a “reasonable job” as Prime Minister, despite his humiliating resignation last year in the wake of the Brexit vote. And he apparently has no regrets about his decision to hold that vote. “The lack of a referendum was poisoning British politics and so I put that right,” he concluded. In Cameron’s mind the lemon juice apparently worked a treat.

In February 2016 the Conservative MP David Davis airily stated that there was “no reason” Britain could not conclude entirely new free trade agreements with its biggest foreign markets “within two years”. Trade experts regard that as catastrophically ignorant of the technical difficulties involved in constructing such complex deals. But now that the two-year Article 50 European Union divorce proceedings have been triggered and Davis is the minister for Brexit he has an opportunity to prove himself correct. Let’s hope the lemon juice is operational.

It gets worse. Research from scientists at the University of California suggests over-confidence is often taken as a signal by others of actual competence. So Trump and Cameron’s electoral success may have reflected a view among the public that they must have known what they were doing precisely because they told us so forcefully. Ditto the super-confident Brexiteers like Davis.

Such cognitive biases may not only explain why we sometimes have such inadequate political leaders but also why we have such chronically unequal societies. The flip-side of unmerited over-confidence can be unmerited under confidence. And experiments by the behavioural economist Jeffrey Butler have found that when individuals are randomly assigned high and low pay in cognitive ability tasks those who are luckier often became more confident and competitive, while the unlucky tend to grow demoralised and to inaccurately underrate the relative ability.

Perhaps this research offers a clue as to why bright and diligent kids born into disadvantage so often fail to fulfil their potential while the most prestigious jobs and political power so often seem to be monopolised by the thrusting and grotesquely over-confident sons of privilege. Or to put it another way: why the lemons rise to the top.

#DavidCameron #DavidDavis #DonaldTrump #DunningKrugereffect