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History shows us that slavery is an economic catastrophe as well as a moral one

History shows us that slavery is an economic catastrophe as well as a moral one

Slavery has certainly been in the headlines in the past couple of weeks.

Given this sudden interest in this area of history, it is worth considering the economic lessons it can teach us, as well as the moral ones.

Slavery was abolished in England itself in the twelfth century. Then in 1772, Lord Mansfield gave his famous judgment that as soon as any slave set foot on British soil, he or she was automatically freed.

Clearly, some people became rich by trading or owning slaves abroad. There is nothing new or unusual about this. Taking a broad sweep of human history, the societies in which slavery does not feature form a very distinct minority.

It was Karl Marx who coined the phrase the “ancient mode of production” to describe the economies of both Ancient Greece and Rome. Greece, of course, gave us the concept of democracy itself. Yet, ironically, its economy was built on slavery.

Rome developed the concept even further. With a plentiful supply of labour from its military conquests, the aristocracy owned vast tracts of land, maintained by slaves.

Yet although individuals became rich through slavery, Rome as a society did not.

When the Empire was at its maximum extent in the second century AD, the living standard of the average Roman citizen was the highest the world had yet seen. Indeed, it was probably not surpassed until the early modern era.

Yet the Roman economy, prosperous though it was, remained at the living standard of purely agrarian societies. It never got “lift off”, as Europe did in the eighteenth and nineteenth centuries.

The fundamental problem was that an economy based on slavery has little incentive to adopt new, more efficient ways of working. Indeed, for the individual slave there is virtually no incentive at all. If a particular task can be done better and more quickly, there is always another one which he or she will be given. Innovations, when they did happen, spread only very slowly.

The inherent inefficiency of slavery as a method of production is clear from the experience of Stalin’s Soviet Union and Mao Tse Tung’s Communist China — the two great slave societies of the twentieth century.

The labour camps, filled with the so-called enemies of socialism, represented a huge drain on their economies. Output was low, and large amounts of resources were needed to run and maintain the system.

Slavery is of course morally repugnant, a stain on the histories of civilised societies. But it is also economically detrimental to the societies it ostensibly appears to benefit. The fact is that no society based on slavery has ever come anywhere near to delivering decent living standards for the average person.

The only system which has is capitalism. Britain and other areas of north west Europe started to become rich through a system based on the rule of law, the ability of individuals to profit from innovation and not be expropriated, and the freedom of labour to negotiate contracts.

Morality undoubtedly played a part in Britain’s leading role in abolishing slavery. But by the early nineteenth century, it had become an anachronism. Resources employed in slavery could be put to much more productive use under capitalism.

Perhaps, then, we should remove not just statues of British slave owners, but erase the whole corpus of Greek and Roman art, financed as it was by Marx’s slave-based ancient mode of production.

As published in City AM Wednesday 17th June 2020
Image: Antique Statues via Wallpaper Flare
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What can we learn from the Black Death? Be prepared, trust entrepreneurs, and have faith

What can we learn from the Black Death? Be prepared, trust entrepreneurs, and have faith

Can we learn from history?

An excellent book by Ben Gummer on the Black Death in fourteenth century Britain, The Scourging Angel, shows that we can.

Published 10 years ago, the book offers many intriguing parallels with the Covid-19 crisis.

Of course, the Black Death was almost incomprehensibly more lethal.  Around 50 per cent of the total UK population died in 1348–49. That is 33m deaths in current terms.

Modern scholarship has overturned the long-held idea that the plague was spread exclusively by fleas on rats. Contemporaries knew that it was spread from person to person by breath. The new coronavirus  is transmitted by droplets from the nose and mouth. Both diseases lingered on clothing and objects.

People back then worked out very quickly how plague might be avoided. Those who could fled from infected areas. If possible, they locked themselves away in castles or monasteries.

The peasantry — the vast bulk of the population — had far fewer options. But they did try to cut off contact with the world outside their own immediate village as much as possible.

Then, as now, there were inequalities in health outcomes. Because of their greater ability to practise social distancing, the nobles and church leaders had much lower death rates. Even so, these were still some 20 per cent.

There were arguments over the Medieval equivalent of PPE. In London, the demand for gloves rose dramatically. Master glove makers enticed away their rivals’ employees.  Unlicensed glove production, often of dubious quality, soared. The city fathers had to step in and enforce the regulations more effectively.

On a lighter if macabre note, a “William of Liverpool” was convicted of a different scam. A neighbouring village had no burial ground. For a substantial fee, he agreed to take the bodies and bury them on what he claimed were his extensive fields. Essentially, he then fly-tipped the corpses on his way home.

Then there is the economy. The current chancellor has had to be very innovative with his schemes to preserve jobs. The Black Death created the opposite problem: a massive shortage of labour.

But an equally innovative and imaginative solution was found. Maximum wage rates were fixed by legislation. The local nobility and gentry were given an incentive to enforce it: any fines collected from workers paid more than was legal could be offset against the overall amount of tax due from the county.

Two positive themes emerge towards the end of the book.

First, the authorities then took steps to try to mitigate the impact of any second wave of the plague almost as soon as the first had passed. The streets of London, for example, unimaginably filthy to modern eyes, were kept cleaner.

Here is a key lesson for Covid-19. If a new wave arrives in the winter, there is no excuse if the government is not prepared. The time to start is now.

The second point is that economic activity recovered remarkably quickly. London in particular was soon buzzing again. It was not state action which delivered this — it was confidence on the part of both entrepreneurs and consumers.

Now, as then, confidence is the key to recovery.

As published in City AM Wednesday 3rd June 2020
Image: Coronavirus street art by Evelyn Simak via Geograph CC BY-SA 2.0
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Mythbusting coronavirus is vital for life to go back to normal

Mythbusting coronavirus is vital for life to go back to normal

As the government plans the timetable for getting Britain back to work, opinion polls continue to show strong support for the lockdown.

An Opinium poll at the weekend is typical. Unsurprisingly, given the overwhelming scientific evidence on dangers associated with large gatherings, a massive 84 per cent of respondents thought stadiums should not be reopened on 8 May.

We might, incidentally, usefully recall that on 14 March Sir Patrick Vallance, the government’s chief scientific advisor, stated that shutting down mass events would not have a big effect on reducing the spread of the virus. Had he never been to one himself?

At the onset of the pandemic, it was entirely rational for people to support a lockdown.

The early figures from China suggested the death rate might be in the range of 3 to 5 per cent of those who caught the virus. Television screens were filled with horrifying images of the North Italian health system being overwhelmed.

On the basis of the available information, people acted as rational economic agents. Social distancing took off, offices closed, transport use dropped, all before the compulsory lockdown came in on 23 March.

Much more information is now available. For example, well over 90 per cent of deaths from Covid-19 in hospitals are of people with at least one underlying medical condition.

For someone in reasonable health, the chances of dying from the virus are very low indeed. At least 40 million people – probably nearer 50 million – in the UK fit into this category. There have been just over 1,000 deaths of such people. Do the arithmetic.

Of course, it is both a new risk, and there is a very sensible reluctance to want to avoid infecting the vulnerable. But, rationally, the information hardly warrants the strength of support for stringent lockdown.

We need to turn to behavioural economics to get an insight into current opinion. People acted rationally at the start of the crisis, but less so now.

A well-established phenomenon is that of “ambiguity aversion”. Even when risks exist, most people feel much more comfortable in situations where they feel they have a reasonable understanding of them than when they do not. They know you can be killed or injured driving, but they still do it.

Even during bad flu years, when tens of thousands of those in ill health die, there is no clamour for a lockdown.

People have learned about such events and there is little “ambiguity” around them. Healthy individuals know that their chances of catching it are low. And, whilst it is very unpleasant to get it, they are most unlikely to die.

A key task now for the government is to reduce these uncertainties around Covid.

It is a bit of a tricky one. It is not easy to give out the message that for most people the risk is very low, whilst at the same time not creating complacency.

Still, that is for the spin doctors and advertising gurus. Economics gives them insight on the challenge they face.

As published in City AM Wednesday 6th May 2020
Image by Deserted Marble Arch via Wikimedia CC BY-SA 3.0
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Coronavirus: Economists have a role to play in recovery

Coronavirus: Economists have a role to play in recovery

Lockdowns are starting to be eased in Europe. Austria, Denmark, Italy and Spain are all moving back towards normality. At some point during May, the UK will follow.

We can reflect on what the government has got right and wrong so far in the opening phase of the pandemic.

This is emphatically not to apportion blame. The government was suddenly confronted with a crisis without parallel in living memory. Mistakes were bound to be made. The key question is how rapidly the appropriate lessons were drawn.

East Asian countries responded to the crisis far better than the UK and Europe. But they had the opportunity to learn from the earlier SARS virus, which did not spread to the West.

Government departments did try and prepare by “game playing” a pandemic. Exercise Cygnus in late 2014, for example, seems to have formed the basis for the initial response to the real thing.

But no matter how much governments attempt to develop strategies in advance, in the words of the great Prussian general of the 19th century, von Moltke, “no plan survives initial contact with the enemy”.

At first, the policy was to let the virus spread so that the population could develop so-called herd immunity. This was a serious mistake. Even the most basic epidemiological model would predict a huge spike in cases with a virus such as Covid.

The government learned rapidly. A voluntary lockdown was proposed, to which many people responded.

The actions of a minority prompted the introduction of a legal basis for the lockdown. This was completely correct. We can already see sharp falls in reported new cases in countries such as Italy which introduced lockdown before us.

Another notable success has been what we could term the propaganda strategy. The slogan “Stay home, protect the NHS, save lives” is brilliant. It has been so effective at changing behaviour that some may be reluctant to leave lockdown even when it is lifted legally.

The government still seems to rely heavily on a single team for its epidemiological modelling. They have not learned that this is not a science with the precision of physics. Different teams have quite different views.

Even the projections of the same team can change rapidly. For example, The Institute for Health Metrics and Evaluation is a prestigious American academic outfit. Just over a week ago, they predicted 66,000 deaths in the UK. This is now revised down to 37,000. Were it not blasphemous, we might speculate that their next forecast might be one of negative deaths, with thousands rising from the grave.

Further, epidemiologists focus on the disease in question, how it might evolve, how to contain it, to the exclusion of everything else.

Economics brings a wider perspective. The common perception is that the subject is about macro – the big things like GDP and unemployment.

But the main focus of economics is on individuals, how they take decisions, and how these decisions can be influenced. Economists have a key role to play in any exit strategy.

As published in City AM Wednesday 15th April 2020
Image: City of London by Ian Capper via Geograph is licensed for use CC BY-SA 2.0
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Coronavirus: A traffic light loosening gives the economy hope

Coronavirus: A traffic light loosening gives the economy hope

The strategy of exiting from the lockdown is far too important to be left in the hands of health professionals.

The government’s advisors have played very valuable roles in helping to avert the sort of crisis which overwhelmed the health services in Northern Italy.

Many who were seriously ill with the virus died unnecessarily because of a lack of ventilators. People with other dangerous conditions died because resources were diverted to virus patients. Britain, from an admittedly standing start, has learnt from those mistakes.

But there is growing realisation of the huge costs being incurred economically. A consensus is emerging amongst economists that the British economy has shrunk by about 30 per cent. In money terms, this is a loss of over £2 billion a day.

The costs are not just monetary. Stories of increases in domestic abuse proliferate. Worries about general mental health are growing, with the former Governor of the Bank of England, Mervyn King, adding his voice to them last week.

From a purely health perspective, the lockdown might persist until there is no longer a risk of someone with the virus infecting anyone else and so ensuring that no one dies.

We could take a similar view with road traffic. We could save almost 2,000 lives a year and avoid some 25,000 serious injuries by abolishing motor vehicles.

As a society, we are willing to make the trade-off. We accept this level of death and injury in return for the benefits which road traffic creates.

Obviously, governments take measures to try and reduce these accidents. In the late 1960s there were nearly 8,000 deaths a year. But we are happy for cars and lorries to continue to trundle around.

The virus imposes health costs. It takes up resources. People die and some survivors have long term damage. Getting the economy back to speed brings large benefits.

This is why I devised with Gerard Lyons of Net Wealth, and chief economist to Boris Johnson when he has Mayor of London, a traffic light strategy for getting Britain back to business.

The epidemiologists warn that loosening the lockdown will lead to another large wave of cases.

If behaviour reverts to what it was before the crisis, they are correct.

But behaviour will change. How many people will shake hands as soon as the lockdown is lifted?

This means that the chances of a disastrous second wave in which the NHS is overwhelmed are very much lower than the epidemic models suggest.

We suggest that lockdown is followed by three phases, as in a traffic light, from red to amber to green. Then everyone is clear about the sense of direction. At each stage different economic activities and behaviours are allowed. It will also give hope.

In the red phase, for example, more shops could open such as hairdressers, with social distancing and face masks. In the amber, unlimited private car travel. Only in the green phase could mass gatherings such as football crowds be allowed.

Combining epidemiology with economics is the way to get Britain back to work.

As published in City AM Wednesday 8th April 2020
Image: Empty Streets via Flickr is licensed for use CC BY 2.0
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A lesson in cognitive dissonance for the Corbynites

A lesson in cognitive dissonance for the Corbynites

Behavioural economics — which extends the ability of economics to explain the world — has become very fashionable.

Richard Thaler, Nobel Prize winner for his work in this area, observed that most of the time, the rational choice model of standard economics works well. People gather information on the various alternatives open to them, and choose the one which fits their preferences most closely.

Behavioural economics comes into play when people are observed to deviate from the predictions of this model. To explain this, Thaler points out that economists borrow bits from psychology and add them on to their basic rational choice theory. He has shown how various psychological concepts, such the so-called “endowment effect” and the “sunk cost fallacy”, can be used to explain why people make irrational choices.

Yet one important piece of psychology which economists have not used so far is the concept of cognitive dissonance.

The US psychologist Leon Festinger encountered a classic example when he infiltrated a group which believed that a catastrophic flood would end the world on 21 December 1954. The appointed day came and went, and the world was still there. Rather than processing this information rationally and abandoning their discredited beliefs, group members adhered to them even more strongly. The fervour of their proselytising increased.

Another important instance is seen in the Ukrainian famine of the early 1930s. On Stalin’s instructions, the Soviet military and armed members of the Communist Party seized the grain in the Ukraine. Millions died as a result.

The ardent young Communists turned on the Ukrainians and accused them of terrorism.  The peasants were, despite all the evidence to the contrary, deliberately starving themselves to death in order to discredit socialism. Any Party member who disagreed was shot.

A much less harrowing example is given by Jeremy Corbyn and his cult during the General Election here.

The Friday before polling day, I was in my home town of Rochdale, having a drink with a couple of long-standing friends, both very experienced local Labour members. They were certain that Labour would lose. Brexit was certainly being mentioned on the doorsteps as a reason why voters weren’t supporting Labour, but the main reason was Corbyn.

My friends made specific predictions on the basis of rational analysis of the evidence. The neighbouring seat of Heywood and Middleton (majority 8,000 in 2017) would be lost. It was.  Elsewhere in Greater Manchester, the Tories would win Leigh, Labour since 1922. They did.

Information of this kind, gathered on the ground by experienced agents, was fed back to the Labour leadership throughout the campaign from all over the country. It was pointedly ignored, possibly on the grounds that the informants were right-wingers trying to discredit the Dear Leader.

The electorate took some time to discover the reality of Corbyn. But once they had done so, far from displaying cognitive dissonance, they made a rational choice.

Now Labour, if it is ever to recover from defeat, should learn the same lesson.

As published in City AM Wednesday 18th December 2019 
Image: Jeremy Corbyn via Flickr licensed for use CC BY-2.0
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