nef has produced a volume of attention-seeking rubbish research that attempts to prove how little bankers are worth, and how much more other jobs are.

Now I want to make it clear – I have nothing against the idea that a naive extrapolation of what people are ‘worth’ from what they are paid is full of errors and injustice.   I have blogged as much – on the subject of executive pay, and power.   Chris Dillow has done so, even better. Pay is about a lot more than merit.  It is often about power.  nef do NOT have a patent on that idea.

But I have never, ever, read such a casual, biased and attention seeking bunch of rubbish as their attempt to ‘prove’ how much bankers are *really* worth – and in fact I worry that it is so bad that it will bring disrepute on practical attempts to do something about disprortionate salaries.

I wish I could be as succinct as the third comment on the Guardian’s piece.  This comment also gets it right.  I have not the time nor domestic credit to go on at length.  Just a few quick observations on what passes for analysis in their banker section:

  • They take one period – the 100 year storm we’ve gone through – work out  the peak to trough loss of value, and call that “what a banker does”.  Then divides through by the banker’s supposed normal value add.   That is their ‘technique’.  You may have thought that economics was difficult, having read all about Paul Samuelson.  Oh, clearly we were wrong.  It could be done by irate fifth formers.
  • The peak value of our production and our economic capacity – the level it was at when the bubble was blowing – is taken as the base case, and the difference to  the low level it may be now, the loss made.  So, apparently, without the City – without any financial intermediation –  our GDP would have been at the bubble levels, and the only reason it is not is because of the bankers.
  • The same assumption is made of public accounts.  So we would have had only 38 per cent of GDP as debt – if it were not for the bankers.  Yes, forget that Germany, France, Japan, any number of countries that did not supposedly depend on a parasitical ‘City’, also have had large increases in debt.  Forget that the only reason we could afford such high public spending and have debt only at 38pc was because of bubble-dependent revenues.
  • Forget the counterfactual.  Forget how financial intermediation, shifting large scale resources from savers to borrowers, might have some value.  No, just treat it as a combination of banditry and gambling, you know, like a drunken student would, if he had no intellectual honesty
  • They are even so crass as to divide tax contribution between retail and wholesale according to employees.

Look, I could go on.  I dread to think what I’ll find when they try to prove what other professions are worth.  I started today quite hostile to bankers, keen to ask at a New Statesman question time event a banker-bashing question advocating forced recapitalisation.  I end the day thinking that if they have enemies like nef then they must be doing something right.

Seriously – do me a favour.  Read the report ( I gave it to Rosie, our excellent intern who normally lacks confidence on economics.  She took a few pages in and, drawing a deep breath, warned me “don’t read it. This is probably the most biased and annoying rubbish you’ll ever see”).

So, someone, do me a favour and read it for me, and post your 100 reas0ns it is rubbish in the comments.  Because sheer irritation at the evident bias, short-cuts, and what Chris Giles charitably calls “heroic assumptions” might waste me a few hours.

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11 thoughts on “Not Economics, Frankly

  1. When I saw it was from nef I decided I couldn’t be bothered to read it, given their track record in silliness (and a few gratuitous insults from the Chief Exec my way, but that’s another story).

    Because you’ve battered it, I’ll suppose I’ll have to now and find something worthwhile in it.

    Ya silly bugger.

    Shame is that nef could be so good.

  2. Sorry about that. Seriously, it could have been ignored. But blame the frankly shameless newspapers, who should NOT have covered such a blatant piece of headline chasing.

    However, it is important that this is debunked. It gives us think tanks a really bad name when such sloppy and biased work is allowed out. THat you, a left-of-centre thinker, should also find this to be true, is a real testimony.

    You are right: there is no need for this to be bad. But finding an alternative to economics should not be easy – if there was a New Economics, it needs a bit of genius.

  3. My first memory of nef was reading that they had “worked out” that 1976 was the peak year for human happiness. Like a dufus I went around repeating this fact to my friends, as if they had done any more that just go nuts on the Gini coefficient.

    I want 1 day warning of their next piece, so I can prepare some journalistic friends for what they are doing, and give them a more honest and critical reaction.

  4. Sorry, with that out of the way: after having read both your posts (but not the original report), I don’t think I have much to add. You did a thorough demolition job!

    All I can say is that I sincerely hope that if I handed in something of that calibre as my econometrics project next summer I would get it thrown back at me by the examiners as a “fail”. (Note to nef: it is virtually impossible to get a “fail” mark on any piece of work handed in to a British university!)

  5. Maybe it would get an First for Effective PR with No Valuable Substance.

    Thanks for the confirmation. I am impressed by how dismayed the Left are at this report as well.

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