Gestaltz

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Risk Preference and Psychometrics

There are now lots of automatic investment providers that offer cheap and easy investment management. They normally begin with a ‘risk assessment’ which consists of asking you to choose your risk profile on an ascending risk scale scale of 1-5 or 1-10. The risk scale is calibrated to the degree of market volatility. This strikes me as beyond naive. In an earlier blog I concluded that market volatility was not necessarily very important to someone saving for retirement or investing primarily for income. For many people that regard themselves as risk averse, the correct choice is in fact 10. The correct choice depends on far more than simply presumed attitude to market volatility.

In choosing a level of risk one begins with the objective. The risk assessment should be relative to not achieving the objective. The risk choice should be calibrated to the the seriousness for the individual of not achieving the objective. This has two components. First, the inherent uncertainty in the chosen strategy. Second, and most important, the interaction between this uncertainty and behavioural responses of the investor. Market volatility may play an important role in behavioural interactions. Hence, a well designed strategy for a clear objective may be thwarted because the investor panics at the first sign of mark to market loss. The strategy is abandoned, the objective lost, and quite probably a loss incurred. The problem is that no one knows how an investor will respond, least of all the investor.

The response of investors to mark to market losses or gains is neither known with certainty in advance nor necessarily stable. Asking investors to choose a risk preference in advance is a futile and potentially dangerous exercise. It may excuse the manager responsibility for what happens after investment but it does help the investor. The latter do not know their response to mark to market losses (or gains for that matter). Nor can they be sure to respond in the same way in all contexts. There is for example a well known tendency to protect gains and run losses. The investment strategy needs to account for potential investor behavioural response and the risk choice needs to be set at a level that ensures the strategy is not abandoned. Of course objectives change (birth, death, marriage, divorce) and some degree of flexibility must be built into the strategy in any event.

One route would be to use psychometric assessment to identify potential behavioural responses. Such assessments could be included on automatic investment websites. The investor could choose their risk preference and then complete the psychometric questionnaire. The questionnaire would either validate the initial choice or give the investor food for thought. The website could offer advice based on the objective and the questionnaire result. It seems to me that automated investment platforms must sooner or later involve psychometric assessment of risk preference as a perquisite. The problem is that suitable questionnaires are not yet available. There is a market gap for psychometrics methinks.

 

 

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Who Pays the Tariff-man?

In my recent blog on The Law of One Price I explored how this useful economic abstraction was being rendered a reality by the internet. The piece ended with a reference to research that purported to demonstrate that the law of one price made inflation measures more sensitive to macro factors such as energy prices and exchange rates. A conversation through the comments section with a longstanding friend and ex-colleague reminded me that I had not explored some interesting implications in relation to tariffs, a rather pertinent subject at the moment. The discussion comes under the general heading of the incidence of taxation or who pays the tax-man.

One of the first things economics students learn about (even pre-undergraduate) is elasticity. This measures proportionate sensitivities. The elasticity of demand, for example, is the proportionate change in quantity demanded of a good for a given proportionate change in price. It answers the question  ‘if price rises by p%, by  what % does quantity demanded change?’. The discussion is bounded by four extreme cases; perfectly elastic demand, perfectly inelastic demand, perfectly elastic supply, perfectly inelastic supply.

In the case of perfectly elastic demand, price is invariant. The producer can sell any amount they wish at a given price but nothing at a higher price. This is not as daft a construct as it seems. An individual producer may well face such a short-term demand curve. All it is really saying is that an individual producer (e.g. a single farmer) is a price taker. The market will take all they have at the prevailing market price but nothing for a penny more. Most small commodity producers would recognise this demand curve. The same construct also has analytic value at the macro level.

What if the demand curve for imports is perfectly elastic for a country (e.g. the USA)? The exporting country is a price taker. They can sell all they produce at the prevailing price but nothing at a higher price. If the US imposes a tariff, the exporting country is on the hook for the whole tax. They cannot raise the USD price of the export (by definition of the problem). They must either absorb it into the profit margin or be bailed out by depreciation of the exporting country’s currency (the local currency). The latter keeps profits in local currency the same because the USD then buys more local currency. The same Dollar revenue translates back to more local currency and, most important, enough to pay the tariff. So in answer to the question, who pays the tariff-man, if import demand is elastic then it is the exporting countries. Note there is little or no impact on US inflation in this case.

The corollary is that if US import demand is inelastic then the US consumer is on the hook for the tariff. In this case US consumers are price insensitive and most if not all of the tariff is passed on in USD prices of the import. There is a full impact on US domestic inflation. The profits of exporters, and the local currency, are largely unaffected. One can immediately see that this simple concept, elasticity, can provide useful insights into the consequences of the current US experiment with tariffs. If demand is elastic the exporting country and company pays. If demand is inelastic then the US consumer pays and is being more heavily taxed in a regressive manner.

The elasticity of demand for US imports is an empirical matter. I do not have the data to hand but one assumes the US economists have ‘done the math’, as they like to say in the US, and the tariffs are being imposed on goods with elastic demand curves. This still means the global economic cake will shrink, but the elasticity determines how the shrinking is distributed among the global players, and the impact on domestic inflation rates. Premium products such as German cars tend to have inelastic demand curves. The higher price is one reason people buy them! Steel, however, may well have a more elastic demand curve. The US experiment is ultimately bad for the global economy but what remains to be seen is who suffers the most, relatively. I hope this brief discussion and taxonomy helps in thinking about the likely impact on specific companies and economies of the tariff war. Think price sensitivity….

Inequality

Discussion of inequality typically takes place in a philosophical quagmire. Observed inequality is an outcome of the social and economic process. It is an ex post concept. However some see it a social good (or bad). Wealth equality, it is argued, is a social good and more of it desirable whatever the cost. Indeed many argue that not only is more wealth equality desireable but it brings gains not costs. The evidence is however somewhat lacking. In part this is because no one is asking the right questions.

Inequality of wealth is an outcome in market economies. Even if everybody could somehow start from the same position, inequality of wealth would result. Differences in effort, skill, and luck would ensure differential wealth outcomes. For those that see wealth equality as a social good, restricting the set of possible outcomes is desirable even if the restriction demonstrably reduces economic growth. The question that needs to be posed and answered is does restricting wealth inequality outcomes reduce economic growth? This is a question that never seems to be posed in economics. It is assumed that it does, but this is not self-evident.

The issue comes down to motivation to work hard and take risk. It is likely that effort and risk taking are not linked to specific wealth outcomes. It is likely however that motivation is linked to the ability to keep the fruits of ones labour, whatever they happen to be, and dispose of such fruit as one sees fit. The question then becomes what happens to motivation if one is told ex ante that only x% of the fruit will be available and the accumulation of fruit will be capped at K. There might be a first generation effect on motivation as social narratives adjust but it is likely that the motivation would be unaffected for a range of values for x and K. It would be useful if economists and psychologists could generate some data on this range of values.

Less wealth inequality most likely would not affect the long run steady state of growth in a closed economy. It may well do in an open economy where acceptable levels of equality vary across economic jurisdictions. Hence we had the ‘brain drain’ to the USA at one point. Nevertheless, from a global perspective, less inequality, from current levels, may not have a material impact on growth. Indeed it might well boost global growth. One of the problems with too much inequality is that it limits demand growth and reduces incentives for risk taking. Beyond a relatively low-level of wealth accumulation it becomes about power (buying people) and not consumption (buying things). The motivation for power may not lead to optimal risk taking from an economic growth perspective. However the power aspect also makes acting on inequality quite challenging.

The marxist approach is to eliminate the market mechanism and centralise all economic decisions. There is no wealth inequality because there is no personal wealth. This does not eliminate inequality just inequality of wealth. Power inequality remains and can even become more extreme. Moreover, the elimination of the market mechanism creates problems in determining how to organise the economy. In simple terms, what should be produced? The Soviet system failed because it could not adequately address this problem. To my knowledge no one has adequately addressed this issue (we were taught about comparative economic systems at UCL when I was an undergraduate). For those that are quick to attack the market system be sure you have something that works with which to replace it other than fine words. It is not in any event necessary in order to reduce inequality.

The issue of inequality can be addressed within market based economies so long as the values of x and K are made clear ex ante and are not varied arbitrarily. What people hate most is adverse surprises. What is required is more emphasis in economics on the optimal ex ante level of inequality. Indeed it should be made the central question in modern economics. It is unlikely the optimal values x and K are zero but they are most likely smaller than the ex post outcomes that we observe today. Indeed a reduction in inequality from currently observed levels would probably boost growth and possibly even productivity.

 

Identity

The concept of identity is fundamental to human existence. Who we think we are and who others think we are construct who we actually are and play a determining role in mental and physical health. Identity is a construction both at the individual and group level. It can vary within families and among siblings. It is influenced by gender and sexuality. In this blog I wish to consider, again, nationality and ethnicity. Nationality and ethnicity tend to be conflated but they are quite different and neither is well-defined. Ethnicity is rooted in genetics. Nationality is a legal and cultural concept. Ethnicity does influence identity but it is in the realm of nationality that identity is constructed.

Nationality is important because the world is organised as nation states. One nation may embrace a number of cultures and quite frequently these cultures try to form their own separate nation. The core identity is evidently a cultural construction although ethnicity can often correlate and be used in the construction. All that is required to be an american is to be born in America. This does not mean all americans are equal. There is a class system and ethnicity and religion play a role in this class system. To be english however requires more than just being born in England. Indeed being born in the UK no longer even automatically confers citizenship.

In the UK there is a category of citizen known as foreign-born, Ironically, for some older folk (like myself) this is misleading and open to injustice (as the Windrush affair demonstrates). I was born in Cyprus but it was a British colony at the time so I was a British subject by birth, as indeed were my parents. Cypriot independence did not occur until 1960. Moreover, the Republic of Cyprus removed the automatic right of Citizenship from all ‘Cypriots‘ that were not ordinarily resident in Cyprus after August 1955. Families like my own that had migrated before this date were no longer deemed automatically citizens. To classify people such as myself as foreign-born ignores the reality. We were not born in a foreign nation. We were born in the British Empire which at the time made no distinction between being born in the British Isles or elsewhere in the Empire. Unfortunately no one cares about such fine distinctions and historical facts.

The concept of a ‘Cypriot‘ is quite complex. The history of the island is of conquest and subjugation. This inevitably involves considerable ebb and flow of genetic and cultural material. It does seem however as if settled communities (villages) have been in place for many generations. My own ancestry seems rooted in one village with the family buried in the graveyard of a 12th century chapel. I am ethnically Cypriot but not legally. I also acquired a command of the Cypriot dialect of ‘Greek’ and have a good insight into Greek village culture dating back to 1954! But I am not Cypriot and certainly not when contrasted with the Cypriots living in Cyprus today. I have moved on and so have they.

I was months old when we arrived in London and have never resided in Cyprus. I identify with London. I speak English and was educated in English schools and went to English universities. Apart from my university years I have worked and lived in London my whole life. I am culturally more English than anything else yet I am not English and cannot be English. This is not my choice. It is the choice of the English. I could not be more integrated but my cultural identity is not determined by me. It is determined by those that lay claim to being English. I am legally British but in these days of nationalism there is no nation-state of Britain.

My situation is not unique. It is common to many that have a foreign point of origin but are prohibited from fully adopting the identity of the country of residence. It is a cultural not a legal prohibition. It means that I and others like me live in a perpetual no mans land, neither here nor there, neither this nor that. It is interesting to note that this identity problem is gender based. Two of my sisters (one older, and one younger and born in London) appear not to experience the same identity ‘crisis’ despite looking very much like me. It may be that because they have married ‘Englishmen’ and adopted english names. It may be that women are seen as less threatening by the host community and more easily accepted and integrated. The fact is their experience is not like mine.

The identity crisis has mental health implications. Humans appear to have a fundamental need to belong and share and be part of a community. Being constantly an outsider is stressful and creates anxiety, a chronic anxiety. Individuals cope in their own ways and some even make the no mans land status work for them. If you belong nowhere then you are not bound by internalized context. You always think outside of the box because you are never in a box (however hard you try to take refuge in one). This can make you useful to others. They may never like you much or accept you as ‘one of them’ but they may yet keep you close.

So why have I returned to this subject (which permeates most of what I write)? I have ordered a book called “The Lies That Bind’. It is written by a modern philosopher and is about national identity. I suspect from the reviews that it will be a rigorous exposition of the views that I have expressed. I propose to read it and convey any new insights in future blogs. Watch this space.

The Good School

It is reported that parents will pay a premium to purchase property in a good school catchment area. Good schools are usually identified as those that have above average exam attainment by their pupils. This rather begs the question of whether good schools add educational value or admit brighter and more motivated pupils (or at least more motivated parents). I confess I am more inclined towards the latter explanation. This does not mean moving to good school catchment areas is a bad idea. One at least can associate with similarly motivated parents. This may well be the hidden agenda.

The idea of a good state school in the sense of value added seems like a non sequitur. State schools run similar educational systems and have similar funding. They differ mainly in their intake. So one can see why catchment area might make a difference but not why the school should be able to add value. There might be such things as good teachers and good headteachers but why should they disproportionately turn up in any one school? Moreover, the quality of teaching is also correlated with the motivation of teachers. Might teacher motivation not also be correlated with pupil and parent motivation.

A good teacher, however defined, is not obvious ex ante. It takes a while to identify one. The initial distribution of teachers across the system is thus arbitrary. Some schools may be lucky to enjoy a cluster of good teachers from the onset but by and large one must explain why good teachers gravitate to specific state schools and make them ‘good’. It is unlikely to be pay as good teachers can earn far more in the private sector. Pay variation in the state sector is possible but is not that great.

The education process thus seems to operate a little arbitrarily. A school gains an arbitrary reputation for being ‘good’ and this sets off a virtuous circle attracting motivated parents and pupils, and teachers, into its catchment area. This flow of better students reinforces the good exam results and justifies the flow. In areas where a school gains a bad reputation a vicious circle ensues. There is little educational value added but rather a movement of motivated parents. The strongest evidence of this is the premium parents pay for property in the catchment area for good schools.

A good school is not one that has excellent exam outcomes. It is one that improves the educational attainment of the children it admits. If the intake is of children at a less advanced level of attainment then even average exam results might be evidence of a very good school. But who would know? The media tables do not adjust for initial conditions. The ‘good school’ story is really one of class adjustment. Motivated parents with sufficient resources cluster together in like-minded communities under pretence of seeking good schools.

The Underclass

Sociologists and economists often speak of an underclass but definition is imprecise. I have my own definition. You are a member of the underclass if you have ever availed yourself of a payday loan (or a loan shark). The interest rates are usurious. The only reason anyone uses such credit is because they are desperate. They are fundamentally living beyond their means. Borrowing from a payday loan is not a solution. It is to compound (literally) the income/expenditure mismatch.

If you go to a payday lender it means you cannot get credit elsewhere. Normal credit criteria state you are not a suitable customer for (more) credit. Payday companies will lend you for a short while but at usurious rates. It comes as something of surprise then to read that Wonga, a payday lender, is considering insolvency because of claims for loans that should not have been made. The precise criterion for whether a payday loan should have been made is lost on me. Surely none of these loans should have been made. By definition, if you need a payday loan, you cannot afford one.

The regulator ( and claims companies) are about to force a sharp contraction in this sector. If it is possible to make inappropriate payday loans (what is an appropriate loan?) then the whole business model seems unsound and the industry will contract. At one level this is a good thing. Usury should not be sanctioned. However, what then happens to the underclass that avails itself of this credit?

The hitherto growth of this payday sector suggests there are many people who have no savings, no access to credit or a social group that can help out, and are living below the poverty line. There may be some who could tighten their belts and just manage their resources better but I suspect most in this underclass cannot tighten their belts without severe deprivation. Imagine what this means. The UK has free heath care, free education, free advice (Citizens Advice), a proliferation of food banks, credit unions, and a welfare system. Yet still people need payday loans! Something is not quite right here.

The two categories most likely to use payday loans seem to be benefit claimants and those on zero hours contracts. The changeover to Universal Credit has left many short which implies the welfare system is no longer an effective safety net. Zero hours contracts suggest many struggle to make rent and if one lives in London, making rent may be tough even if one has a decent job and regular pay. Becoming homeless is not advisable. It is not difficult to imagine how desperate people resort to payday loans. It is a short-term fix that makes matters worse. What happens if payday lenders withdraw from the market? What happens to those that cannot make rent?

The desire of successive Tory governments to eliminate moral hazard has punched huge holes in the UK’s safety net, whether by design or incompetence. People that fall through this net are the underclass and will struggle to get back above it. One reason is their enforced use of payday loans. The regulator is bailing the existing generation out by allowing reclaims based on inappropriate lending. This may kill the sector, which is good on one level, but still leaves the economic need that has driven people to use payday loans in such numbers. What happens now? One prediction I make with some confidence is that evictions and homelessness may jump.

 

 

Referee Bias In Football

Every football fan has come away from at least one match aggrieved with the ‘(b)anker in  black”. Referee bias is claimed by all fans at some point. It may be home team bias, ‘big’ team bias, red team bias, or just bias against players of certain ethnicity. Fans will claim it. But what is the evidence? In reading some back issues of the Psychologist* I have discovered one study that offers some interesting evidence on referee home bias.

One problem with simply looking at the incidence of fouls is that it is conceivable that away teams systematically commit more fouls. There is no a priori reason to expect this but the data cannot exclude the possibility. In the above study of La Liga, the Spanish premier league, it was uncovered that the number of fouls given away by home and away teams exhibited no bias. A strong bias was however uncovered in the severity of punishment of fouls. Away teams were systematically punished more severely for a similar number of fouls.

The inclination to so act was not related to referee experience but was related to home crowd size. The larger the crowd the more severe was likely to be the punishment for an away team foul. This may also correlate with the sense of ‘big’ club bias as the crowds typically are larger. Apparently there is experimental evidence that supports the idea that crowd noise will influence the severity of referee punishment and thus result in away team punishment bias. Perhaps fans are not so imagining bias after all.

The study cannot exclude the possibility that away teams commit more serious fouls but the link to crowd size and noise would suggest there is something else going on. It is likely fouls are given automatically by referees without thought. The penalty card however occurs with a lag and this allows time for the referee to think and respond to crowd noise. It is in this short gap that the bias seems to emerge. The tendency for home crowds to roar ‘off, off, off’  for the every foul is thus influential in punishment outcomes.

* The Psychologist, April 2016, page 267

 

 

The Law of One Price

The Law of One Price is fundamental to economics. It simply asserts that the same commodity should trade at the same price. If it does not then an arbitrage opportunity will emerge. It may be possible to buy it in one place and sell it for more somewhere else. The action will continue until the price is the same everywhere.

Obviously buying and selling and transporting are not costless activities. Such costs may allow deviations from the Law. Differential taxes such as tariffs will also cause deviations from the Law. Regulatory differences will also make possible large deviations. The right-hand-drive made it possible for European car makers to charge higher prices for the same car in the UK for many decades. Possibly the most serious practical deviation arises from imperfect information (assumed away in the perfect competition models of economics). If people do not know they can get it cheaper somewhere else, then price differences may persist.

The EU single market makes the Law operate more effectively and when combined with the internet, almost perfectly. Just before the UK referendum on continued membership of the EU, I purchased a set of Bose headphones from a store in Germany. Even with postal costs it was much cheaper than the best price in the UK. Sterling was at its strongest versus the Euro. UK prices had not adjusted to this strength of sterling. Importers were keeping the currency windfall. The store in Germany also had a deal for these headphones. The internet allowed me to search across the whole of the EU to establish the cheapest accessible price. It took about an hour.

The internet has reduced search costs too such an extent that the perfect information assumption of economics is no longer quite so ridiculous. Moreover, the development of low-cost delivery systems has begun to reduce access costs within a single economic region. Free standard delivery within the UK is now common for orders above a certain value. It is only a matter of time before such service is available across the EU single market. It is a shame UK citizens will not have access.

The free standard delivery across the UK also has implications. The ability of retailers to segment the market is now limited. It was not unknown for a national retailer to charge a different price for the same product in different UK regions. Free UK standard delivery and price discovery is making this more difficult. Even for less easily transported products, the knowledge of differential pricing carries reputation risk and is thus less easy to sustain.

There are of course goods that cannot be arbitraged. A gallon of petrol from a petrol station in Doncaster can have a sustainably lower price than one in Belsize Park, London. Ironically a car from a dealer in Doncaster can compete with one from a dealer in London. I had a car delivered from a dealer in Doncaster to London. It was the cheapest of the model that I wanted and that I could find in the UK.

Non-traded goods however have always been outside of the Law of One Price. With greater price discovery through the net and a willingness to travel, some traditionally non-traded services have become more sensitive to national competition. The advent of Email, Skype, and online identity verification is making services accessible across the UK even without travel. Smartphone banking apps use online verification as do many online savings accounts. No doubt solicitors and accountants could do so also and still meet money laundering regulations. If you have a well-defined and verifiable online footprint you may never need to meet anyone in person. The best way to get such a footprint is to acquire a credit card.

The internet has made the Law of One Price no longer a pedagogic abstraction. It is a reality for many goods and indeed services. One recent piece of research suggests this will make measures of inflation more sensitive to macro shocks. Macro factors such as energy prices, interest rates, and exchange rates will pass through to inflation indices much more quickly. It is logical to expect increased competition to increase price responsiveness and inflation volatility. It is instructive to see how much the internet has increased competition. It is interesting to see the abstraction of the perfect competition model of economics start to approximate reality. Adam Smith would be impressed I think.

The prospect of more volatile inflation outcomes is not without consequences. It will make headline inflation even less useful as indicator of underlying trends. It is unclear how it will impact the formation of inflation expectations. Energy prices and exchange rates are volatile and difficult to predict. By implication so will be headline inflation. Policy makers will no doubt focus even more on ‘core’ measures but will the consumer?

Understanding Populism

The lack of understanding of populism is becoming as worrying as the phenomenon itself. It is often described by ‘experts’ as an ideology. It is not an ideology. This should be self-evident since it is a feature of both left and right-wing politics. It should more accurately be described as a methodology. It is a mechanism for achieving power. It has no fixed axioms with logical policy implications (an ideology). It is a fluid and pragmatic process for achieving power. One distinguishing feature is that it does not care who it hurts in this process.

The trick of populism is to mimic democracy. It is a form of democracy but not as we have come to understand it. Democracy is also a methodology. It is a process whereby we decide who is to run the apparatus of state for a specified period. The common form of democracy today is representative democracy. We elect people to represent us in the process of government. We do not vote on every issue. We let them decide. Populism makes greater use of the plebiscite or referendum. It puts specific issues directly to the ‘people’.

The other feature of our prevailing democracy is pluralism. The elected government of the day may be drawn from a specific social group but it is understood that it will govern in the interests of the whole nation. Minority groups expect to be protected by the government of the day from any dictatorship of the majority. This has become internalized in our democracies too such an extent that any deviation is seen as undemocratic. It is simply anti-pluralist. The UK referendum on EU membership is an example of populism in action. A simplistic plebiscite produced a marginal majority of votes cast (many were disenfranchised) and this result of direct democracy is used to dictate a major constitutional change on those who opposed. Erdogan has used similar small majorities (and corrupt oppression) to fundamentally alter the constitution of Turkey.

Perhaps the distinguishing feature of populism is the identity politics it promotes. It chooses a group that is just big enough to give it power and speaks to this group. In the UK we have two populist movements at the moment. The anti-EU movement and the marxist movement (best characterised by the Labour party’s Momentum). They both demonize ‘foreign’ workers albeit for different reasons. It is of no interest to either whether their claims are justified or what pain they may cause. Their objective is simply to identify a sufficiently large group of voters whom they can give common cause and then present themselves as saviours. The ‘foreign’ threat (whether it be to wages or ‘our way of life’) is a popular coalescing factor.

Populism is often associated with nationalism. It is not intrinsic to populism which is why it is not an ideology. It is simply a very amenable social trait when it comes to coalescing a sufficiently large group to achieve power. The objective of populists is power. They do not have any preconceptions on how it should be achieved. The objective is power for power’s sake. Nationalism has served populists well in this respect over the centuries though power achieved through nationalism does seem transitory. But then populists are not visionaries and are rooted in their own time.

The psychological technique used by populist in their ‘political campaigns’ is to liberate repressed feelings. They identify the repressed feelings of the ‘people’ and encourage them to reveal and embrace these feelings. They tell the ‘people’ it is ok to feel this way. Others feel like you. We feel like you. These feelings are not your fault. You have been oppressed into hiding these feelings. You have been oppressed. Vote for us and we will bring all you oppressed and repressed people together and give your voice power. We will make you feel good about yourselves again. For a psychologically damaged population this kind of release is compelling. The repressed feelings may be about ‘foreign’ people or ‘capitalists’, it makes no difference to the true populist. However, one can also see how, as a political methodology, populism also appeals to those with an ideology. This may be why it has come to be seen as an ideology. The depressing thing is ‘experts’ are publishing books explaining it as an ideology.

Populism is a methodology whereby those that seek power can achieve power. It is a form of democratic mob rule with the populist leading the mob. It mimics democracy and thus disarms liberals and pluralist democrats. It has no respect for evidence and tells people what they wish to hear, which they believe because they wish to believe. It makes them feel better to believe it. There is no consistency or coherence in the utterances of populist politicians because they are dealing entirely with repressed emotion. There is no consistency or coherence in repressed emotion.  This is where the world has descended. It is experiencing a tidal wave of parochialism generated by populism and which is fast becoming a tsunami. Brace yourselves.

Postscript

It is the nature of such blogs that they are ‘dense’ and this can often require the reader to resolve certain apparent inconsistencies. It may prove difficult here so let me help.

I describe Populism as a form of democracy and as mimicking democracy. The reason is that democracy has come to mean representative pluralist democracy and this is what it is mimicking. It is however a simple form of direct democracy. Both are methods of deciding government.

I refer to the Labour party as demonising foreigners even though most Labour voters and members are pro-EU. The leadership is not and has made statements to this effect in terms of low cost foreign Labour. The populist handle of the Labour party however (as decided by Momentum) is anti-capitalist rather than simply anti-foreigner but there is overlap. The Brexit campaign is simply anti-foreigner.

Finally I refer to populists as pure power seekers but recognise that ideologues might also use populist methodology. Corbyn is an ideologue using populist methodology. Boris Johnson is a populist. Johnson is not encumbered with an ‘ology’.

Corbyn and Anti-Semitism

Robert Shrimsley has published an opinion piece in the FT that claims that the Labour party anti-Semitism row reveals a deeper truth about Mr Corbyn. According to Mr Shrimsley, Mr Corbyn is an ideologue. Mr Shrimsley has concluded this from the observation that Mr Corbyn failed to adopt the IHRA definition of anti-semitism. He argues that by adopting the definition and then not implementing it he could have buried the row and got on with more important matters (Brexit, power). Failure to do so reveals an ideologue.

A coherent ideology implies logical policy positions that carry equal weight. To reject any one position is to reject the ideology so each position is held with equal vigour. The policy positions stand and fall together. This is similar to empirical testing of a theory. If data reject one logical implication or theory prediction they question the theory and all logical implications. Shrimsley thus proposes that rejecting the IHRA definition of anti-semitism is somehow consistent with a coherent ideology. He does not explain which ideology contains such a logical implication and, apart from some crackpot conspiracy theories, I know of no coherent ideology that requires a particular definition of anti-semitism. There are of course anti-semitic ideologies but surely Shrimsley is not suggesting that Corbyn and his Labour party are ideologically anti-semitic? Perhaps he is.

There is no question Corbyn is ideological and that he holds all logical policy implications to be equally important. In this respect he will do exactly what he says if he comes to power. He will pursue all policies with equal vigour. He is not a pragmatic politician and as such potentially dangerous. This is the ‘truth’ that Shrimsley purports Corbyn’s position on the IHRA definition reveals. This truth was evident before and has nothing to do with the anti-Semitism definition. Unfortunately there may be an even more sinister truth hinted at by this ongoing debate.

Mr Corbyn has proved better at judging his voter base than we gave him credit. At the last election Labour did surprisingly well. They retained their pro-Remain vote despite an overtly pro-Brexit position. More important the latter enabled them to take as much of the collapsing UKip vote as went to the Conservative party. The result was a much reduced Tory majority. What if Corbyn has once again correctly judged his voter base?

The anti-Semitism row will lose Labour many Jewish votes. But as Shrimsley points out, this is a tiny community in terms of ballot papers. The question is, will it impact non-Jewish voters and how? The disturbing truth that is being hinted at is that, outside of the Jewish community, it may have little impact in terms of ballots cast. This is why the Jewish community is understandably seeing Corbyn as a ‘existential threat’. If he and the Labour party can survive this persistent accusation of anti-semitism with no ill effect in electoral terms, then what does it say about the UK today?

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