I have written six book reviews this year

What a rare thing – a blog post.

At the end of another writingful year I thought it worth noting a few of the achievements now likely to vanish into posterity. There are, after all, so many words out there, mostly words about words.  Like book reviews. I have written six this year, the most recent published just now in Prospect Magazine, about “The Future of the Professions: How Technology will Transform the Work of Human Experts”, by Richard and Daniel Susskind.

Here it is. And here, an excerpt:

Technological improvement is theoretically limitless. Eighteen years have passed since Deep Blue, an IBM computer, beat Garry Kasparov at chess. Since then, as Moore’s law has predicted, computer processing power has doubled every 18 months; now Kasparov would struggle to beat your iPhone. Four years ago, IBM’s Watson beat two of the greatest champions ever to play Jeopardy!, an American television game show demanding erudition and lateral thinking. Watson’s method was brutal: load up terabytes of unstructured data, apply probabilistic algorithms and spit out an answer … But it is too early to extrapolate such improvements into a future in which the machines take over the decision-making role of humans. As a feat of futurology, this book could have benefited from a more sceptical take on how monopolies evolve to shield themselves from the forces that threaten them. The Susskinds set out a model for the evolution of professional work in which the last stage is “externalisation,” where the deep practical knowledge of the professions is released to the commons. Knowledge wants to be free, and market forces will drive it that way. Yet, as they acknowledge, professions also show a profound reluctance to share. This is understandable. A legal firm does not spend years accumulating an understanding of specialist law only to give it away.

The rest were at the FT. The most popular by far was of a book by Yanis:

Often it reads less as a work of economics, more a drawn-out conspiracy fable that just happens to use economic terms; the author, at times appearing confounded by supply and demand, is determined to see Machiavellian impulse behind every flow of capital. One of the mysteries the book clears up is how Varoufakis could so annoy Greece’s creditors that his departure proved essential for a deal.

I (almost) felt conflicted writing one on Will Hutton’s latest, as I know and like the man. But I was not convinced:

What I find less convincing in How Good We Can Be are his remedies, which, given his goal of “ending the mercenary society”, can look strangely small. As in previous works, Hutton’s focus is firmly on ownership and governance. But against the macroeconomic sweep of the financial crisis, demanding that companies “declare their business purpose on incorporation” feels like a rather dilute response. Requiring directors to outline their virtuous intentions through yet another layer of narrative reporting will not magically elicit greater results.

I also know and admire Lord Turner, whose Between Debt and the Devil is well admired. But, again, not wholly convinced:

Macroeconomics allows no controlled experiments. This one great financial crisis stemmed from several causes. To distinguish the essential from mere side effects is not easy. What if funding had been less flighty, banks better capitalised or central bankers less blithe about finance? How significant was the rise in oil prices, given how it scrambled inflationary signals at the very worst time? Is it meaningful to blame a culture of short-termism in Wall Street? Sifting such a welter of detail, I was left in two minds. Turner’s comprehensive account suggests what might be called “credit determinism” — but it could equally prove that such a crisis required every unlucky star to align.

It was hard not to like Richard Thaler’s gentle stroll through the birth of the somewhat overhyped Nudge movement. I remember having to complete this on that miserable May night.

Just like ordinary economics, the behavioural offshoot is a tool to be used, and like any tool can be applied well or badly. As Thaler says at the very end of Misbehaving, the real triumph for his field will come when it ceases to exist and is fully absorbed by the broader discipline that ignored it for so long.

And finally, probably the weakest book I have read, by Tariq Ali. The old lion roars to little real effect about The Extreme Centre

This book does a better job of describing Ali’s sadness at the failure of the left than expanding on why. The closest thing to a consistent explanation is human corruptibility before the temptations of money. But the book never explains why perennially incompetent capitalists always have enough of the folding stuff to keep the system going.

So many hours, so many words. Sorry, it all feels a bit … bubblish right now. What are all these arguments for, anyway?


Some writing I must hold up my hand to

I knock out about four leaders a week.  No, you cannot tell which are mine, officially, and in any case they reflect the FT View, not necessarily mine.

Still worth reading though. (£), but so what.

I also produce a few in my own name when so graced by the Comment section.  For neatness/vanity/posterity, here are some that spring to mind.

The Grexit standoff is Not a Prisoners Dilemma. Very pleased with this as it sprang from a hasty 20 minute email argument.

A Saturday look at the Osborne Ordo-liberal imitation of German ways Worth it for the Keynes quote.

What ‘working’ with Steven Hilton was like.  Got a lot of Twitter love for this. So many people revolted by his Newsnight More Human sell.

There are plenty more, I am sure. Enough for now.

New permanent role

In case it is not otherwise clear: I am now permanently employed by the Financial Times to write leaders.  This means I write about 2400 words a week for the best newspaper in the land, on topics judged to be important enough for the privilege.  Just you will not know it is me, and (crucially), the words represent the views of the newspaper not necessarily the biased ranting of this blogger.

It is great fun.  Insert cheers and congratulations here.

It does not necessarily mean I will never blog here again.  As you can tell the style here is somewhat different. I am yet to work out the rules and, to be frank, the time difficulties are as much the obstacle as anything else.  Putting out that many words for as good a publication as the FT on the short notice one necessarily receives, often on topics unheard of a few minutes before, is challenging.  I spend the last half hour of each day in a state of combined elation and paranoia, having filed.

I will still be doing the odd op-ed, of course, and reposting from the extensive back catalogue here.  Have you seen how extreme the various fiscal plans of certain parties are? And did you read what was published here on it in June, July?  You get the picture.

It’s sunny, there are two magpies in the garden eyeing the huge crop of frog- and toad-spawn in our pond, and so I need to dash.



Gripping video about scandalous spads

So I spoke at the Institute for Government yesterday, next to a couple of much better people, Nick Hillman and Pamela Dow.

UPDATE.  Something weird with URL.  Visit this link if you really want to see me in a shiny suit.


It was all about my long-awaited pamphlet, hastily titled “The Unelected Lynchpin”, full of catty references and ill-disguised anecdotes concerning my time right in the centre of power.  Well, off to the left a bit.

I am still at the FT, and therefore cannot or should not be blogging anything substantial – this event was obviously all about my former guise as scheming spad.  Enjoy.  The questions get much ruder after forty minutes.

All that reading …

Since this will probably be the last post for a while, permit me a little off-topic indulgence. This probably has way more personal history than you wanted.

I’ve been trying to work out what has been stressing me these last, ooh, 25 years and how to adjust my life accordingly. I don’t want stress, if possible. There have been obvious triggers: for years, staring at financial markets and trying to will them in the right direction, against a backdrop of telephones continuously ringing; the arrival of three children, neatly timed so that no sooner had one dropped the nappies than another arrived; doing an MBA while working; one Monday morning becoming a Special Adviser to a Coalition government that I had never imagined, and for the politician I most admired.  All of these could keep a good psychotherapist busy.

But a constant thread that laces through all these eras is a pressing need to have read what I thought needed reading. I cannot actually recall a time when a nagging sense of not having read enough didn’t weigh on me.  Back in the 1990s the pleasure of visiting a bookshop was always interwoven with a gnawing sense of guilt and negligence on my part, at all the unread pages around me.  This was compounded by the typical style of a normal book review, which in praising or condemning its subject would usually make reference to half a dozen other authors or works.  The Sunday Times Review section became a risk, adding piles to the mental “to read” list.

I sometimes wonder if my first attempted career (books) was a straight consequence of this neurosis.  I worked unpaid at the Cheltenham Festival of Literature (convinced I had to read that year’s Booker list, I failed); and then trotted off to an anonymous corner of the Home Counties to edit encyclopaedias for a year (this was not a dream come true). And read.  Through the simple device of having not enough money for much else, and existing in a pre-Internet fog of Ceefax-level information, I read like never before.  I bought Harold Bloom’s The Western Canon, and chewed through a lot of it.  Just from memory I recall reading …

… Middlemarch, The Mill on the Floss, Silas Marner, Madame Bovary, Dubliners, Ulysses, Portrait of the Artist, Byron’s Don Juan, Mansfield Park, Bleak House, Dante Inferno, all of Don Quixote, several of the Rabbit novels, Anna Karenina, half the Canterbury Tales, the first three books of Proust, a fair amount of Montaigne, Vanity Fair, One Hundred Years of Solitude, Shakespeare’s History Plays, Crime and Punishment, the Brothers Karazamov …

and these are just the ones I have a distinct sense impression of reading. There was far more. So often, when I try to remember when I read a book, it was in that year.

Yet, it is a pretty thin list.  Far too little real history, which came much later. Not much American literature, North or South, nothing from Germany, the usual 19th Century bias. And then life got busy, and the Internet got invented, and wandering into a Borders-side cafe with a bag of new books no longer seemed the greatest luxury but an avoidance of more urgent things.

But the neurosis didn’t dissipate, it merely shifted.  Study threw in a whole basket of economics, politics business and history tomes. The Web played a multiple role: flagging more “must reads” (all those guilty purchases of Piketty!); adding high velocity, high quality commentary and endless news sites to the list; and drawing attention to geniuses like Tyler Cowen whose “What I’ve been Reading” posts read like an unsubtle dig at the mortals around us not able to chomp through 20,000 pages of social or economic analysis a month.  The Economics and Politics categories of my Feedly add about 100 per day, and only a minority are garbage.  Now I tend to have 2-3 books on the go at once, usually a novel, biography, history sort of combo, each one fleetingly visited and barely attended to before the eyelids droop, and the Internet fills up the list overnight.

Enough.  Something is clearly broken – the info-surge rather than filling the likes of me with enlightenment instead spreads an even more crushing sense of ignorance.  Men are natural “completists”, but reading is a task that can never be completed.  Our forebears seem to have understood something we cannot any more – the idea of a still, unmovable canon. Read Patrick Lee Fermour’s A Time of Gifts and you witness a supposedly indifferent student supposedly able to amuse himself by reciting great chunks of Horace and Shakespeare from memory as he trudged across central Europe. How? How did all these fantastic Shakespearean phrases get into the language? People from before knew how to limit their reading, and then focus. It doesn’t seem possible any more.

So, stuttering to an end, I am simply curious: does anyone know of a reliable way out of this trap? Is there a good lasting delineation between Must Read and the rest? I have only a few crude methods of self-medication:

  • – Distrust anyone describing anything as “Must Read”, particularly on Twitter
  • – If a new novel really is a classic, it will be more apparent in a couple of years.  Wait.
  • – Delegate: for topics that you are really comfortable with, the brilliant reviews will cover a lot of ground.  The ten or so Piketty reviews have saved me weeks, and added real analysis

But perhaps the best self-medication is to take more pleasure in being ignorant.  After all, it leads to a better conversation.

  • On that topic, I am going to be off for a while to be with more terrifyingly well read people.   The Financial Times has hired me for some months on a Fellowship.  Sorry this is abrupt.


Is weak demand a conspiracy of the scheming rich?

Paul Krugman has kicked off a meandering blogosphere discussion of why hard money policies are so stoutly defended, despite overwhelming evidence of the damage they are causing (see Martin Wolf on Europe today). As Wolf says, this is not just sad, it’s dangerous.  He is right: it is difficult to imagine an important agenda that right now wouldn’t be helped with a load more NGDP growth*.

Krugman’s first stab is to look at the beliefs and motivations of the ultra-rich, and comes up with a puzzle: they really don’t gain from low rates, low asset prices, depressed economies, so why the anti-inflation hysteria?   False consciousness perhaps, searing memories of the 1970s?

The peerless Interfluidity sees things differently: the very rich are not concerned with aggregate outcomes:

To the extremely rich, wealth is primarily about status and insurance, both of which are functions of relative rather than absolute distributions. The lifestyles of the extremely wealthy are put at risk primarily by events that might cause resources they wish to utilize to become rationed by price, such that they will have to bid against other extremely affluent people in order to retain their claim.

The ultra-rich like the stability of the graveyard, because there the gravestones are fixed, and they kinda like where they are positioned.  A really stimulative policy, risking a little extra inflation for a chance to get a lot more growth and break out of this trap, risks shaking everything up.  When you’ve climbed so far that you can look down on 9999 out of every 10,000 people you don’t like things being shaken up. So the rich are being highly rational.

Implicit in Krugman’s approach is the assumption that the rich and the decision-making elite intersect closely. But David Glasner says it’s not just the rich: when have you ever seen a worker’s rally in favour of a bit more inflation? Why have the Democrats never voted against the renewal of the Fed’s mandate? Can you imagine Labour attacking the Coalition from this angle, at the same time as pushing their Cost of Living assault?

In my grim mood, this leaves me with little hope.  More NGDP might risk a little more inflation, and a lot more growth, plus a useful, gentle redistribution from creditors to debtors.  I think it may be a missing part of the Piketty analysis (I haven’t read enough to know); while really high inflation hurts everyone, the moderate levels after the War helped enable the sorts of redistributive policies that brought inequality down. It allows a little more fiscal drag.  But just about every section of society can be brought to campaign against it.


*OK, you might retort “Carbon emissions?”.  But weak state finances have critically undermined the ability of nations to make the sort of deep, long investments needed to fix this one

Choosing your voters

I doubt many of you have failed to read Matthew Parris’s column(£) from Saturday, or any of the furious reaction.  The gist of his argument: Clacton is a nice place with nice people but going nowhere, and the Tories in particular are heading down a dead end if they pay heed to the sorts of opinions needed to win such seats. Here is an excerpt:

“There are many in a place like this who might be attracted again to the Tories by a noisy display of hostility towards immigration-and-Europe, political correctness and health-and-safety: hostility to a Britain that has forgotten the joys of Ken Dodd, meat pies, smoking in pubs and the Bee Gees … is that where the Conservative party wants to be? … Or do we need to be with the Britain that has its career prospects ahead and not behind…?”

He argues that we should care for the needs of the people of Clacton, but be careless of their opinions.

You might see the Parris article as another salvo in a war tearing up the Tories  that pitches the liberal cosmopolitans against a more nativist, socially illiberal approach. I think this was tackled decisively in a Janan Ganesh column from 2014.  Amongst many superb passages, there is this simple insight (subscribe to get it all):

A cool counsel would also warn that no policy tinkering can disarm Ukip of its lethal weapon: the personal appeal of Mr Farage. Kent’s answer to Pierre Poujade, the mid-20th century French populist, has the knack of radiating clubbable good cheer while cursing almost everything about modern life. His mastery of the demotic marks him out from professional politicians such as the jarringly slick prime minister and Ed Miliband, the Labour leader who communicates in academic epigrams. To fight personal force with policy is to make a category error.

My emphasis, because this is exactly what I felt when in government, struggling with unworkable immigration proposals; as if the voters were going to read the small print of an Immigration bill and fall out of love with Farage!

Ganesh goes on to make a simpler point that pre-echoes Parris: don’t adopt UKIP policies, because they are “simply awful ideas”.  However Parris’s target is not only Tory attempts to ape UKIP, but also Labour’s courtship of the same target voter, presumably through boneheaded redistributive policies – “the politics of victimhood, subsidy and the soup kitchen”, that renounce Blairism and  drag down the “winning” areas like Canary Wharf and Cambridge.

I have been a fan of Matthew Parris since the impatient dog days of Major when his columns tearing up the Tory Right were the funniest, most incisive thing around, and despite going purple with frustration at many of his orthodox, Tory-pessimistic economic views.  Given the tone of Twitter, saying anything at all in his favour is mad.  Nevertheless I will try a very minor defence.

I should first concede that many of Parris’s critics are right: he has handed a helluva recruiting tool to UKIP. He also allowed the style of his column (e.g. “Shops tell you so much … Lycra is the textile of choice” etc) to imply that just sniffing the wind in a town and counting the tracksuits, crutches and betting shops gives you a right to say what the people think, what their opinions will be – and then whether you should reflect them in your pitch.  No wonder he’s being whacked like a pinata.

What I don’t get is disquiet at the idea that his Party has to show some discrimination in which opinions it will court.  Nobody should berate the LibDems for ignoring the opinions of climate change deniers, or those who cannot see anything to be proud of in modern Britain (see Rawnsley). Labour can’t pretend to love the opinions of accountants designing tax avoidance schemes- and Conservatives cannot succour those calling for a big increase in welfare, paid for by tax. You have to tell a voter he is wrong, sometimes.

But in the most passionate assault on Parris, Dr Tim Stanley argues that being careless of the opinions of the people of Clacton is ignoring their needs.  They want respect. But there is a thin line between being respectful and patronising in a different way – by pretending on the doorstep that UKIP-style nativism is a workable answer for Britain, or (on the left) that endless redistribution is the answer.  Surely what people really want is solutions that work, that don’t merely assuage a cry of anger at the modern world but actually help them cope with it? These, in my view, respect the liberalism that did indeed win the 20th Century.  As JC writes for The Economist in a  piece that dares to back Parris:

“What is certain, however, is that whichever [Party] first chooses to throw itself into the pursuit of cosmopolitan voters will have the demographic wind behind it. That party will most likely dominate 21st century British politics.”

From the tone of his previous assault on Parris, Dr Stanley and a great chunk of the Conservative party simply don’t agree  with this liberal, optimistic premise.  In fact I wonder whether the Tory brand is now so confused between the hug-a-husky days and later Austerity phase that neither cosmopolitan nor communitarian sermon can be preached in good faith. The more they fight about it in public, the more the public may see that the cloth cannot stretch to cover the whole body.  As a dispassionate observer, I look forward to the spectacle.

The optimistic liberal in me agrees with Matthew Parris that the right policies for this country are cosmopolitan and outward-looking.  But the same optimistic liberal disagrees with him in hoping that these too could be the views of the people of Clacton, and that this is where a brave politician should be pitching his tent.

Dramatic assault on Leviathan, not many dead

Forgive me for the lack of warning: alongside my excellent co-writer Stian Westlake, I have a pamphlet-length publication out, brazenly titled “The End of the Treasury”, and calling for the mother of all “machinery of government” changes.  Stian has blogged on it here, The Economist has a short piece in their print edition which can be found here (and you should read “J.C.” of that magazine on Labour’s interest in this topic on this brilliant blog).  Being described as “knowing my stuff” by The Economist neatly ticks one off my life goals.

For those of you stuck for time, an image might help.  Picture two unarmoured warriors trying to storm a Dreadnought battleship, armed only with spears, and you have some vague idea of what it means for two think-tankers to argue for breaking up and scattering the responsibilities of the mighty Treasury.  I’m not sure what I was thinking, but here are three rationales that may explain this act of suicidal courage:

1. I have had four years near the top of the Government, during which the Treasury bargains were easily the most significant moments.  You will have seen on this blog my serious concerns about how the higher-level decisions are taken.  The shape or very survival of a vital lower spending line may rest entirely on whether a hasty, Conference-pleasing tax bung is signed off.  Everything else has to shuffle to make room.

Meanwhile, pushing in the opposite direction, a small factory of caffeinated Fast Stream twenty-somethings may be concocting spending or tax ideas with only the slightest reference to the stakeholders or more expert officials elsewhere.

Scrutiny so fierce and sceptical that it actually destabilizes government certainty (and therefore the behaviour of stakeholders) sits alongside a cavalier ability to sign off tax measures that permanently erode the fiscal base. My favourite example: the painfully born industrial strategy, wrestling a couple of hundred million pounds for future commitments like the Aerospace Technology Institute, cost less than the beer duty cut announced at the same time.  Except the ATI will be under permanent scrutiny, potentially destabilizing the industrial interests that rely upon it, while that beer duty cut will last forever, unexamined.

I didn’t think this system worked. I had no problems with fierce Treasury scrutiny – officials handling hundreds of millions of pounds should have the wit and skill to pass those tests.  It was the lack of a symmetric scrutiny the other way that alarmed me, the consequence of the secrecy and disjointed power embedded in the current set up. Over years, for budgets with the slenderest margins, it could sway funding away from the good towards the un-evidenced or frivolous. We can’t afford that.

2.  I love post war British history, and have read a fair amount of it through the medium of Chancellors’ memoirs, economic and political history (sit next to me at dinner at your peril).  I found producing that historic section fascinating. All history teaches the reader just how historically contingent is our current state of affairs.  This always leads to the simple insight: thing don’t have to be this way. They are so because of the blunders and learning of the past; the political dispositions (Why did the DEA fail? Because of the recurrent sterling crises, because George Brown was a drunk and Callaghan ruthless …?)

In our case, the Treasury is a product of some lessons very well learned (well summarised by John Rentoul’s account of a PermSec speech here). For decades, Britain lurched from crisis to crisis, always overestimating its ability to defy economic gravity. It needed institutions that controlled overspending, eliminated day to day politics from the management of money, realised its own limited ability to bend markets.  They were just the lessons you need if you are confronting the problems of 1981.  Which leads me to my last point (for now):

3. We are not facing the problems of 1981.

We have had the first fall in NGDP since stove top hats were in fashion. We have a chronically centralised state, and consequently local authorities sapped of the ability or inclination to push pro growth policies.  Our ability to make lasting commitments to industry – beyond a few years out – is badly shaken, at the very time when we need significant investment in energy and infrastructure.  The risks of an inflationary spiral are non-existent, at a time when some exuberant wage growth might actually be nice. We have a chronically difficult fiscal position that can only be solved by departments working together – not through a set of narrow, bilateral negotiations in which they are set against one another.

For the first time since EVER, we have a serious need to increase interest rates in the economy – in a good way (through higher monetary growth, greater confidence, less panicky need for something risk-free).  Tell me how pension funds can stay solvent with long rates at 2.5%! An institution focussed on the very opposite (“any minute now, we’re gonna become Greece”) is pointing the wrong way. At the least, these topics need to be debated, rather than narrowly held within such mighty thick walls.

I don’t think Stian or I think this is obvious or easy.  The next government will above all want the certainty that things can be kept under control; the Treasury is their best weapon to that end. It has amazingly capable people, used to providing solutions and acting decisively. But as JC’s blog illustrates, there are tentative signs that some people are looking this way.


Quibbling about House of Debt

The Resolution Foundation organised a fantastic event this morning, the UK launch of House of Debt, with both authors (Mian and Sufi) on stage alongside Martin Wolf and Stephanie Flanders.  Standing room only, and an astonishingly eminent audience, a Who’s Who of the economic world.  Plus me.

But from their presentation (and implicit in the response from Wolf), the basic thesis Mian and Sufi promulgate is not new territory.  It is familiar from Richard Koo, Hyman Minsky, and even Irving Fisher, and rests of the idea that the asymmetric quality of debt creates systemic risks in its very nature.  Take any economy humming along fine, and if you add to it a bunch of debt contracts – half of the population with a obligation to repay the other half a fixed amount, come what may – then you will have a source of potentially huge instability.  If the indebted half are relying on certain high asset values, and those asset values fall, they will devote their energies to paying down the debt rather than spending on stuff.  If the lending half don’t have as high a propensity to spend, the overall effect is a drop in economy-wide spending.

They enhance the story considerably with lots of data, showing how economic distress maps onto initial levels of debt. So it looks like the causal factor.  Debt is the culprit. Debt is damaging and dangerous.

I had quibbles with this deterministic tale. The macro authorities are curiously passive, watching helplessly as the underwater households drag the whole economy down.  Flipping quickly through their book, it appears that Chapter 11 deals quickly with the inability or unwillingness of the fiscal or monetary authorities to do anything about the fall in spending.  Central bank law, fears about public debt or wrongheaded attachment to their inflation-fighting credibility all . impede the authorities from acting to boost spending again.

This struck me as an extremely short and glib way of dismissing a giant topic.  For a start, it seems clear that their pessimism rests strongly on the initial levels of rates/inflation; no one believes the central bank cannot act to boost spending if rates or NGDP growth were 10% going into the crisis.  This makes me think that the story is really about central bank unwillingness or inability when near the zero lower bound –which shifts the debate entirely.  An interesting observation they make is that financial crises makes the world of politics so fragmented and dysfunctional – hello, Tea Party, hey there, UKIP – that relying on the authorities is naive.

So having somehow accepted the premise that widespread adoption of debt in an economy is like chucking bits of dynamite all over the park during Bonfire Night, the discussion of the solutions entered similar realms of political unreality.  I have not had the time to do justice to the book by reading it, so forgive me if these impressions are misleading.  But the discussion focussed on: more contracts should be like equity, not debt; and in a crisis the authorities should sink capital in forcing debt writedowns.

But both of these are just as politically brave and unlikely as getting the central banks to do their jobs properly and keep spending on track. Using regulations to ban or restrict debt-like contracts because of their explosive nature in a crisis would be the biggest interference in capitalism since Mao suggested the peasants all smelt iron in the garden. If banks were forced to adopt shared-equity mortgages, what would guarantee the demand?  What would prevent non-banks  – or you or me – from offering vanilla debt instead? And as for the debt-writedown in a crisis solution, it sounds like the biggest taught example of moral hazard yet to be attempted.

And as might be expected, there were suggestions to ban bank money itself as one answer.

I doubt very much I have done the book justice, so may revisit this.  But for the moment I think the case against debt is overstated.  Debt levels in a badly managed economy can have a deep effect on the shape of a crash and recovery.  But this is different from showing that the economy will always be badly managed, or that we are doomed by our past debts to a certain grim future.

Stronger brands stronger economy?

The Economist leads off its business section with a piece about the valuation of brands, and cites research suggesting that almost a third of the value of the S&P 500 index of companies stems from their brands.  That is a mind-boggling amount of value, trillions and trillions.

The article goes on to discuss how brands actually add value for a company.  There is a rich seam for MBAs here, as I can vaguely remember from mine in the early 2000s.  But now I am more interested in a fundamental economic question: how do they actually add to the value of an economy?

I think there are two types of answer.  The first intersects with MBA-world and explains how a good brand actually changes business/consumer activity and thereby the economy.  Brands send signals of quality, sometimes simply by being expensive to maintain. In a world where quality can be unknowable until too late, they help nail a company’s colours to the mast: sell a duff product (or just admit to it), and the whole product line suffers. They may cut down information gaps by providing easier ways to distinguish products.  In this answer, the brand is a useful capitalist innovation that improves consumer choice and gets us spending more on things we want. It completes missing markets.  If branding were banned, the economy would really suffer and be less efficient.

The other answer is about rent-extraction, or, in English: the sorcery by which some firms get you to pay far more for a product when it has a strong brand. The archetypal example is the fashionable T-shirt that retails for hundreds of pounds because of its label – but it could just as well be brown fizzy drink (BFD).

Imagine two economies.  One sells its BFD barely covering the physical cost of making and delivering it.  The other has a host of expensive extra activities around the drink: celebrity endorsements, sponsorships, billboards, the whole caboodle – which together encourage the consumers to spend five times as much buying just the same quantity.  The latter economy is larger: products are valued at the market price, and the BFD price is far higher.  A lot of that extra ‘value’ is scooped by the people who build the brand, from the agencies and bill stickers to TV crews and celebrities. The consumers of BFD are willingly paying more of what they produce over to that crew of brand builders, for the same amount of brown drink.

It would be tempting at this stage simply to insert a short lefty rant about how economies are based on a knowing illusion, a con. A great deal of those trillions mentioned earlier is smoke.  But for various reasons I don’t feel like that. My dim knowledge of the history of economic thought suggests to me that multiple past attempts to distinguish “real” value from illusory value have failed, embarrassingly: there is even a wiki page on the subject of why useless diamonds trade for more than useful water.

On the whole, the value embedded in a brand is something a consumer chooses, knowingly, to spend their money on.  The second economy with all its busy activity just to make you think the BFD is sexier is really a more active economy – it has more employed billstickers, advertising agencies and reality stars.  If this sorcery is what is needed to get them into work that is valued in the market, then so be it: lots of human activity is hard to justify a priori. Look at what silly factors help encourage people to spend more on wine.

What matters is our economy now is people willingly handing over their incomes in return for other things, not the intrinsic nature of the things.  If we were in a war time economy, it would be another matter – fire those brand merchants and get them to produce war winning material – but our problems are as much of abundance as constraint.

This is why I think my answer matters, because if brand value is real economic value, our constraints on growth are less.  Transforming an economy from one of homogeneous commodities to brands that people willingly like paying more for is real economic progress of a sort, and less prone to technological limits to growth.  If we don’t want more T-shirts, cars or cola but just those products branded into a form we like more, and will pay more for, well that counts too.

(PS: the fact that the Economist writes regularly on brands is a point in my favour, I think)