Cult thinking at LSE

I went to a couple of days of alumni reunion at LSE.

There were some good things, especially a long discussion with a researcher in macroeconomics. It was somewhat funny, in the presentation he gave, to see him go to great length to avoid disclosing the actual result of his research, lest it be seen as a political statement (although when I then privately asked him that the way he did not answer made me think he had found a fiscal multiplier much greater than one, he finally admitted it). The political economic discourse has been so twisted that merely quoting empirical evidence is seen as intensely political –since most parties reject it (yes, in the EU, very much including the UK, even parties nominally on the left side push for austerity).

He shared many of my impressions about regrettable characteristics of the field of macro (for instance, he himself seemed a lot more interested in empirical validation than micro-foundations), but was far more optimistic –or less cynical- than me on the causes for many of them, in particular the way in which theories that promote the interests of the rich and powerful ended up gaining far more traction than their successes (or lack of them) should have granted. I would not say I am entirely convinced, but I shall at least take his views on board. He did suggest, though, that at best current academic work could inform better future generations of students, but that people in positions of power seemed to have very strong priors on major issues of policy, and that evidence did not seem to change such priors.

There was some less good moments. A round-table about Government ended almost as a discussions of two points only: “Who will win the next UK General Election?” and (admittedly rephrasing) “This trend seems to go against the chances of the Conservatives, which is worrying. Please tell me how they will keep winning elections”. Some went as far as expressing total lack of comprehension of the reasons why strongly disadvantaged minorities hardly voted for a party that is, well, dedicated to furthering the interest of the very wealthy. One wonders indeed.

Just by the end, someone asked why the young voted so little when they did not seem disengaged at all about issues. The facilitator said that this was the ultimate paradox to which no one had the beginning of an answer. I suggested that I could give the beginning of an answer: all three main parties are significantly to the right of the median voter in a system where only main parties can win (first past the post). And on top of that, when a party runs as left of centre, he is ignored by the media, as shown by the Greens in the European elections, who got ridiculously little airtime despite beating the Liberal Democrats.

He first acknowledged that they were to the right of median and that this could be something. Yet he quickly retorted that in the past election, 90% of the expressed votes had gone to one of the main parties, so that people must have felt rather well represented. Er… no. A minute ago, you were lamenting that people did not vote, so judging by those who do will tell you little. And people must vote for parties that run, and know that (except in some very rare constituencies) a vote for another party will have no bearing on the final result. So most of those who vote do so for a main party. That proves nothing. Still, leaving the room he told me “fair point, fair point”, so this was not too bad.

No, the pit was to come. And it came in the lecture that I had expected to be the best.

We met to listen to one of the most prestigious professors of LSE, who sat on the board at the Bank of England, who would talk about economic prospects for the UK (well, at least that was the title of the conference).

He started by showing GDP growth over centuries, which of course suddenly takes off 200 years ago. His conclusion was that once the relevant institutions are in place, economies grow at about 2% per year. I happened to be sitting in the middle of alumni from the MSc Development and Environment and several were already looking incredulous, as of course they could see that this chart was that of a Petri dish. The past 200 years had a conjunction of factors favouring growth and no major constraint had been hit. Quite the opposite of where we are today, so extrapolate at your peril. But leave that aside for a moment.

His conclusion was that one should just look at the very long run (he would later express his frustration at economic discussions of how to exit the slump, since that was too short-run for him, and wished for the debate to move to the long run. It was hard not to think of Keynes’ exasperation at this kind of intellectual cop-out), and that what mattered was avoiding major mistakes. He then added that he believed that Governments made all the big mistakes, and markets pretty much never. It was now clear that this was religion, and we were presented with a chief priest.

Having stated his credo, he asked what made some societies grow faster. There was a page with several potential explanations of why the industrial revolution started in the UK (a different proposition from long-term faster growth, but never mind), and at the bottom, “institutions and culture”. He stated that we now knew institutions and culture were the most important factors (something that is quite plausible, by the way), because when you tried to explain growth differential with the other factors, there remained more unexplained variation than any of the factors could explain. This way of doing “science” must be great, when you get to conclude that your pet explanation is the one anytime the data is noisy enough or simply not amenable to predictive quantitative models. It’s not that far from claiming the abstention votes when you did not run for election.

And it went on. He sang the praise of Thatcherism as having reversed the tendency of Germany and France GDP per capita to grow faster than the UK, totally ignoring the myriad of factors that were bound to make this happen (namely France and Germany were, up to the mid-70s, largely catching-up and rebuilding after the war; North-sea oil went into major production in 1979; the financialisation of the world economy was bound to benefit a country specialised in the field; the asset-debt position of the UK greatly worsened in the period, giving money to the private sector; continental Europe decided to work fewer hours and use some of the productivity gains for more time off work – that, like North-sea oil, would be enough alone to explain the growth differential, so it’s rather an indictment of Thatcherism that the combined effect should end up so small). The ability to fire people easily just had to be what kept the UK from mass unemployment during the crisis (not the productivity collapse or the drop in participation rates, not 500 000 people registering as self-employed despite not having any business whatsoever…). Think about that. You can make a case for ease of firing making someone less hesitant to hire during a period of growth. But to claim that it would boost employment when hardly anybody is hiring yet a lot of people are firing? You’d need incredibly solid evidence for such an extraordinary claim.

And the solution to pretty much everything had to be privatisation, even if it contradicted his own data. He did note that, despite the alleged wonders of Thatcherism, there was no credible energy policy in the UK, and its infrastructure was deteriorating rapidly. There was a chart showing the UK and US, dropping fast relative to France, Germany and Japan, since 1980 (when UK and US embarked in the cult of the private sector, remember). His answer? We need to take it out of the hands of governments, they have kept failing for so long that we must draw the conclusion, governing is too important to be left to the Government.

I kid you not. His conclusion from seeing the countries that had decided to let the private sector run their infrastructure dropping relative to those who kept the state in charge was that to catch up, they needed to privatise some more. I suppose that it’s a logical conclusion to the belief that governments make all the mistakes (and here I could not help but think of Krugman’s quote: A society committed to the idea that Government is always bad will get bad Government. And it does not have to be that way). By then, I was banging my head on the table, and later discussions with the people from the Environment MSc showed that I was not the only one to be appalled.

The problem, though, was that he was such a nice speaker. So later discussions showed that many people in the room had found it a very interesting and convincing presentation (few were even aware of the implicit assumptions). Some of them had a very impressive academic background, with firsts aplenty. And then I remembered Laurie Penny explaining that exams did not test understanding but compliance. Challenging the dogma is not the likeliest path to a first. Top students are not always the most natural critical thinkers.

But I had until then been under the impression (and I still think there is quite a lot of truth to it) that LSE had not been too bad during this crisis, that they had been a lot more willing than most to consider evidence, and to pay some interest to market failures, which really are the norm rather than the exception. So I was appalled to see one of the most senior figures being in fact a high priest of the crudest neo-liberal cult. Whatever data he presented was just a part of the rite, since he frequently concluded the opposite of what the data said. And I had to find myself worried that he could have been left with his paws so near major macro-economic buttons.