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15 October 2017

How Nobel Prize-winner Richard Thaler gave free-market dogma a makeover

Humans do not always make rational choices.

By Peter Wilby

Richard Thaler, the American economist who has just been awarded the Nobel Prize in Economics, was eagerly embraced by David Cameron after the 2007-08 financial crisis. The attraction to the then opposition leader was that Thaler’s “nudge theory” performs the same service for free-market dogma as intelligent design does for creationism: it gives it a makeover.

Because humans do not always make rational choices, Thaler allows, markets sometimes operate inefficiently. The state shouldn’t step in with direct regulation, however, but gently persuade people to act in their own and the community’s best interests. Rather than compelling us to save for old age, it should automatically enrol us in pension schemes while allowing us to opt out. Rather than legislating against carbon emissions, it should tell us how our energy bills compare with those of our neighbours and provide us with “smart meters” to monitor our energy use.

Thaler’s premise is that there’s nothing wrong with markets, only with people, and the state’s role is to make people fit for markets, not the other way round. If you use drugs, eat junk food or get into unsustainable debt, it’s not because of poverty, inequality or lack of hope but because of your behavioural flaws. Since after the financial crisis the belief in perfect markets was as unsustainable as the belief that God created the world in 4004 BC, Thaler came at a convenient moment for free-market capitalism.

Choosing sides

Is dispassionate journalism still possible? Or must we all take sides? In a recent interview, the veteran Labour MP Dennis Skinner, after praising the 1945-51 Labour government, asked a journalist: “Do you agree with that?” The unfortunate hack replied, “I’m just here to ask questions,” and got a lecture about how “you people… think you’re above it all”. The Guardian’s John Harris reported that, everywhere he went, he found similar attitudes. Trying to tease out “contradictions and inconsistencies” invited “derision and hostility”. He and others blame social media.

But it was the mainstream media, as it is now called, that first sold the pass. The distinction between the news and comment pages has become blurred, in the Guardian almost as much as in the Mail or Telegraph. Newspapers of different political persuasions now talk to different people and use different sources of information. Many of their columnists are tediously partisan, finding nothing in their opponents’ arguments worthy of even cursory consideration. I could once read, for example, the Telegraph’s Peregrine Worsthorne with as much pleasure and intellectual reward as I read any Guardian or NS writer. I cannot think of a single columnist in a right-wing newspaper of whom that is now true.

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Blair on the hunt

Following a freedom of information request from the Mail on Sunday, another attempt by Prince Charles to influence ministers has emerged. In 2002, he complained to Tony Blair that opponents of hunting with hounds were motivated by “antipathy to the type of person who they think goes out hunting”. That was precisely the attraction to Blair of banning it. After four consecutive Tory election victories, Blair decided to offer the country another Tory government but without the baggage of the Tories’ upper-class associations. He therefore put the abolition of hereditary legislators and a free parliamentary vote on hunting at the forefront of his programme. That he didn’t go through with the first and eventually decided that the second was a mistake tells you everything about the shallowness of his politics.

University challenge

Is Jeremy Corbyn the first party leader to be accused of breaking an election promise before he has even formed a government? Labour’s strong performance in this year’s election was attributed largely to its manifesto commitment to scrap student fees. The Tories are now rewriting this as a commitment by Corbyn to abolish student debt – that is, to excuse recent graduates from further repayments and even to reimburse those already made. Since shadow ministers admit that the £100bn cost is probably prohibitive, Corbyn is accused of deceiving young voters.

Here is what Corbyn actually said during the election campaign in response to an interview question: “Yes, there is a block of those that currently have a massive debt, and I’m looking at ways that we could reduce that, ameliorate that, lengthen the period of paying it off, or some other means of reducing that debt burden. I don’t have the simple answer for it… I don’t see why those that had the historical misfortune to be at university during the £9,000 period should be burdened excessively compared to those that went before or… come after. I will deal with it.” The Tories quote only the last two sentences.

The forgotten Vulcan

I am not sure if this is a sign of my failing memory or the fleeting nature of fame. Probably both. In the Observer, I came across a reference to “the undead Thatcherite John Redmond”. Surely that’s wrong, I thought. John Redmond was an Irish nationalist MP who died in 1918. But wasn’t there once a right-wing Tory minister with a similar name? Redfern, Redhead, Redford? Didn’t he stand for the leadership? Didn’t I endure a lunch with him during which, whether I tried large or small talk, he was hostile?

It took me 24 hours to recall the name of John Redwood, otherwise known as “the Vulcan”, a fellow of All Souls once regarded as the Tory right’s standard-bearer, who indeed stood for leader in 1995. Remarkably, he is still an MP, fervently supporting Brexit but largely ignored even by other Brexiteers.

Sic transit gloria mundi. In the 2040s, perhaps journalists will refer to Bertie Johnson and readers will struggle to remember his real name and who he was.

This article appears in the 11 Oct 2017 issue of the New Statesman, How May crumbled