The English and Their History: The First Thirteen Centuries by Robert Tombs

This, for me, is the most influential book that I have read in years. It is a feelgood book for the English. It writes England’s history to show why we are as we are. And it does so in a sympathetic fashion reminding us of the things we did well, alongside those not done so well. For me, in the context of a looming referendum in the UK on continued membership of the Euro, it has an intriguing analysis of why we ended up with the EU membership we have.

There is so much that is wonderful in the book, particularly if you are English and like history. It is not chauvinistic about England in the context of the rest of the countries of the British Isles and Tombs is clear that no English history can be complete without lots of Welsh, Scottish and Irish history. He tries when possible, however, to tell the English story only straying into the history of our neighbours when you cannot tell ours without telling theirs.

It is broad and sweeping, starting with pre-Roman England and cantering through the centuries at a good pace. There are kings and queens, and wars and rebellions but Tombs is mostly concerned about the way we lived, how we thought about ourselves, and how we changed and evolved.

At the start, Tombs explores the origins of England and the English; the moment when we started to define ourselves in geographic, linguistic and cultural terms that are roughly coterminous with what we have now. Romans, Saxons and Vikings buffeted this early Englishness but there were consistent themes, amongst which were relatively well-organised government with local devolution, and a common and written language. This is the prelude to the three, or perhaps four, wrenching moments in our recorded history when there was rather more change than continuity.

The first, as Tombs makes clear, was the Norman invasion of 1066. The French newcomers did radically change the nature of the country, how it thought about itself, how it was governed and, clearly, the language spoken. Tombs is objective but I sensed a little regret at the Norman yoke and the loss of an effective co-operative, not coercive, system of government. The melding of Franco-Norman with Anglo-Saxon to create early modern England leads up the next great upheaval.

The Henrician Reformation and the hundred and fifty or so years of religious/political upheaval that followed was tumultuous to live through and led to what Tombs considers to be an enduring division between Anglican and Dissenter that has fed through to our current political geography. Anglicans dominate in the Eastern and Southern lowlands and Dissenters in the Western and Northern regions. Patterns of eighteenth and nineteenth century religious observance carry through to Conservative and Labour voting patterns.

Number three, on my list at least, was the industrialisation of England and the empire that accompanied it. While England had had avant-garde and exceptional components of its history to this point, which Tombs points out, the agricultural and industrial revolutions made England exceptional, creating a sense of ourselves that was new. Moreover, as well as growing at an historically unparalleled pace, we also exported millions of people who created the English speaking world of today. I had not realised that, despite American Independence, the majority of British emigrants went to the US.

This leads to Tombs’ intriguing and, for an Englishman, rather reassuring narrative of the twentieth century and the two wars. Tombs takes the line that Britain was pivotal in both, with the Royal Navy the most effective fighting force. He does not go down the path of Sleepwalkers in saying the first War was a terrible accident. We did the right thing. Nor does he wholly go down the Hastings path in saying that until 1916 it was all about the French. He reminds us how vital it was that the Navy kept the German navy in port and blockaded the country.

Likewise, he does not believe in the marginal contribution of Britain to the second war: the idea that the Soviet Union defeated Germany on the Eastern front and the Americans the Japanese in the Pacific. There is lots of good stuff. For a start, he questions the relative weakness of Britain in 1939. Britain out-produced Germany in lots of things. Again, the Navy was pivotal: keeping open the Atlantic, supplying the Russians, policing the Mediterranean and confronting the Japanese.

He also holds the view, putting aside the moral debate, that Bomber Harris was factually right and the revisionists factually wrong about the bombing of Germany. A great boon to the Russians was that the immensely effective German 88mm gun was largely deployed in Germany on aerial defence and not in Russia on tank-killing. On D-Day, Hollywood is wrong. It was largely an Imperial operation. Most of the troops landed were Empire troops, and far and away the majority of the shipping was British.

All of which leads seamlessly to Tombs’ narrative of declinism. He argues that, war-ravaged and indebted though it was, England was in, relatively, not bad shape in 1945. Moreover, through into the 1950s, we continued to be innovative and ahead in many technologies. Economic growth was fine. But we, somewhere between the mid-50s and mid-60s talked ourselves into believing we were in decline.

Part of the cause was relatively slow economic growth. But he points out that our European neighbours were engaging in catch-up growth. I am reminded of Thomas Piketty’s empirical observation that countries at the technological frontier (who can only grow by innovating not copying) have tended to grow at 1% a year or less. We should have been growing more slowly than Continental Europeans. But part was undoubtedly Suez. He doesn’t say it, although others have, that American unwillingness to forgive war loans was the reason we were running deficits that needed financing and therefore beholden to US approval for our foreign policy decisions. We paid for twice defeating the Germans and the US profited.

This sense of decline engendered, in turn, a desperation to join the Common Market and, when finally offered to us after de Gaulle’s departure, led us to accept a poor deal. We joined the Common Market at a low point of relative economic performance and national confidence, and so swallowed the deal available, not a good deal. So much of our relationship with the EU is not really so much about whether we should be in or out but about trying to negotiate ex post facto the deal we should have negotiated in the early 1970s.

So what of my possible fourth wrenching change? Tombs ends with where we are now. He shows how extraordinary have been the levels of immigration into the UK in the last couple of decades. He also, for me at least, has some very encouraging statistics on how quickly racial integration is occurring at its most literal level – intermarriage. Englishness is on the move.

Go Set a Watchman

Should I re-read “To Kill a Mockingbird”? I have the thought having just finished “Go, Set a Watchman”, Harper Lee’s sequel. I read Mockingbird almost thirty-five years’ ago as my O-level set text for English Lit. I hugely enjoyed it. It was a coming of age story. It was a fascinating window on the American South. And it was a happy story. Childhood innocence is challenged by adult wickedness but adult truth and justice defeat it. Atticus stands against racism in defending Tom, and Boo Radley unexpectedly defends Scout and Jem.

What follows contains many plot spoilers. Beware!

Go Set a Watchman sees Scout, aged 26, return to Maycomb from New York for her annual pilgrimage home and this is the year she finally grows up. By the end of the novel, she comes to see Atticus as a flawed adult, who loves her as she is, and only asks the same of her. She sees that he is neither saint, as at the start of the story, nor devil, as midway. Scout, in turn, finishes the novel more adult and less child.

If Tom’s trial is the central thread of her first novel, it is the collision between the Civil Rights’ Movement and the White Supremacy of the South in the second. The story is her witness of how this touches her family and friends, how it has changed them, how it changes her and her relationships with them.

The main event is when Scout surreptitiously attends a meeting of Maycomb’s Citizen’s Council, a white response to the NAACP, and Federal Government and Supreme Court interference in the South in support of Civil Rights. She sees Atticus, and possible husband Hank Clinton, calmly listening to an inflammatory racist demanding that African Americans be put back in their place. She suddenly sees the Council and Maycomb’s white folk, above all Atticus, as no better than Supremacists. She is horrified and feels rejected by her father and home town. How can the people and places she loves be so alien to her?

The whole incident, creeping in, looking down from the gallery and eavesdropping is a metaphor for a child listening in on an adult conversation and being disturbed and confused by content. Scout’s naivete shows itself in her both resenting, as a Southern girl, the relentless interference of the Yankees in other people’s business but also, colour blind as she is, railing against the injustice that African Americans can only be accepted if they don’t ask for too much. In short, she hankers after the past, her childhood, when all seemed OK. Everyone got on in their respective stations. If Atticus and Hank disappoint her, she is also heartbroken when she goes to see Calpurnia and is treated, not as a returning daughter, but another white oppressor.

Three characters from the first novel are unchanged by the second. Her brother Jem has died several years before of a heart attack, heart disease having killed their mother. Neighbour Dill remained in Europe after the war. Aunt Alexandra Finch now lives with Atticus but is unchanged; an irritating snob nonetheless trying to do the right thing for Scout, to help her fit in.

The novel ends happily at a personal level although disturbingly at a moral one. While Scout rejects Hank Clinton as a lover, condemned ever to be a friend, she comes to a peace of sorts with Maycomb and, above, she is reconciled to Atticus. He is humane and gentle. But he is a Southerner and is not ready for full emancipation of African Americans. Atticus tells Scout that he believes that desegregation and reform should happen steadily giving time for African Americans to civilise themselves. His guiding principle, it turns out, is not fairness and justice, as we had thought, but legality and due process. Atticus the moral being is compromised. His defence of electoral restrictions for African Americans leaves him on the wrong side. He would be a baddie in Selma.

I did find some bits clumsy. Some of the dialogue was more vehicle for rather formal expositions on the political evolution of the South than conversation between adults. I found it hard to believe that Jack would hit his niece.

But, overall, I loved the story and re-meeting the characters. I felt the trust and comfort of re-meeting, as an adult, a childhood friend now grown up. Atticus, at the end of the second novel, is a more plausible human being. The second novel feels much more about segregation than my memory of the first novel recalls.It is perhaps uncanny that the novel is published as there is, to my British eye, renewed debate about the reality of African American life decades after desegregation. It turns out I read, pretty much simultaneously, an article by Ta-Nehisi Coates in the Atlantic describing America’s penal system as a continuation of segregation and oppression of African Americans. Indeed, I started Go Set a Watchman thinking about Scout and Atticus but ended up mostly thinking about the tragedy of slavery, segregation and racism.

So, should I re-read Mockingbird? I am keen to see whether there were hints of Atticus’s position. I would like to be reminded about Hank Clinton. How much of what is in the second novel is prefigured in the first? But I probably won’t. I am happy with the innocent memory of the first.

Bank or Capital Market Stability

Since 2008, policy-makers in the OECD have consciously decided that they prefer to have bank stability even if this means instability in capital markets. They have concentrated regulation on stabilising financial institutions by curtailing their participation in capital markets whether as long-term owner or trader. They have not explicitly said that they are willing to accept greater instability in capital markets. Instead, their message is that they want capital market participants really to bear the risks implicit in the returns they hope to make and not to lay those off, via the banks, to the public purse the moment the risk looks like serious downside, rather than upside, risk. But the result is that capital markets will be less stable at moments of stress.

You might argue that 2008 showed that you could have both unstable banks and unstable capital markets, which is true enough. The damage endured by capital markets would, however, have been worse had the banks not absorbed significant losses, which were, through state guarantees, transferred to taxpayers. Defenders of the bank bailouts will point out that, overall, realised losses on the rescue were modest and even negative. Regulators retort that this was true ex post but was not evident ex ante and makes no allowance for the reputational damage of bailing out capitalists. And, anyway, if it ended so well and was such a good trade, why don’t you, the capital markets, next time carry the temporary losses.

They want banks to avoid risk of loss in the first place – less involvement in capital markets. And, in the event of loss, they want shareholders and creditors of financial institutions – capitals markets – to take as much loss as they can. They have tried to make sure that taxpayers only have to intervene at the very last resort when the reserves of the capitalists have been seriously depleted or exhausted. It is just harder for institutions to trade or and hold some types of securities, particularly those with greater risk of loss.

Capital markets participants are warning regulators that the diminished liquidity seen in markets is a result of the re-regulation of financial institutions, which implies that regulators are unaware of the consequences of their actions. They are aware. Prior to 2008, regulators and policy makers did not think there was a trade-off between the stability of capital markets and the stability of institutions. Now that they know there is, they have opted to ensure bank and insurance company stability by curbing their activity in capital markets. The other option available to policy-makers was to withdraw or water down the state guarantee. They did not do this. Indeed, they have rather reinforced it by their evident pre-occupation with the consequences of it.

Policy-makers are telling us they care about retail financial services. They do not want the payment system, retail and corporate credit or private and business insurance damaged by capital market losses. They also care about their own sovereign credit markets although, given the central banks have had such practice with QE, they should find it easy to maintain liquidity in those markets. Spot fx and commodity trading may also fall into activities that can be defended as necessary for the “real” economy. But, thereafter, I wonder. Futures, corporate bonds and structured credit, equities, derivatives: would policy-makers be able to make a case to save such speculators?

This is probably right from a first principles public policy point of view. Capital markets are there to underwrite risk. Why should state guaranteed financial intermediaries reinsure the risks of the risk underwriters? There are those who disagree and feel that the price of stable financial markets – periodic losses to the taxpayer and unequal income distributions – are worth paying for the broader economic benefit. But, regardless, to me, it is clearly politically necessary. One of the many causes of the apparently global current of anti-establishment sentiment (along with social media, less hierarchical culture and and) is the sense that the establishment is an accomplished player of heads I win, tails you lose.

So what? There is a trade-off between the stability of financial institutions and the stability of financial markets. Regulators know this and have made their choice. In the event of crisis, investors should be prepared to expect little intervention except in areas that relate directly to the real economy.

Stretching the Spectrum

As a committed floating voter, I am encouraged by Jeremy Corbyn’s apparent progress to the leadership of the Labour Party, as it will stretch the political spectrum. He will move the left hand edge a little wider in the same way that UKIP has done on the right. I do not have any tribal loyalties so I can share neither the pain that some Labour supporters feel as they perceive their proximity to power diminishing, nor the joy of some conservatives for whom the elevation of the second Michael Foot seems to presage another three outright General Election victories.

At the simplest level, a wider spectrum offers more choice. Whilst they might be ruing it, the Labour MPs, who gave Corbyn votes in order to encourage a broad debate, had a point. It has all been couched in terms of whether or not to have austerity. In practice, no sensible policy-maker really believes in outright austerity; the Paradox of Thrift dealt with that. The austerity debate is really an extension of the eternal debate about what is the right size for government and what should it be doing.

A wider spectrum may also create more breathing room for the middle. It is striking that the left has kept its most leftward mainstream manifestation inside a mainstream party. That is not true on the right. We shall see if that proves a benefit or a hindrance. It might be helpful in Scotland. A Corbyn Labour Party might do better in Scotland against the SNP by adopting some of its language and attitudes. Is Corbyn deft enough to assemble a broad coalition of the left by recovering votes in Scotland with his strong language whilst retaining the soft left with concessions on what he actually implements?

Perhaps, though, it gives the battered Liberal Democrat Party space to re-establish itself. A strong conventional or a Blairite Labour leader would surely have further starved it of oxygen when it is already badly injured. Can it use its experience of power to produce sensible centrist economic policies to sit alongside its socially liberal stance? That is, does it have the strength to resist its socially liberal outlook dragging it into what Americans would call economically liberal policies? It might find this job easier, or more necessary, if it has to use such sensible economic policies to distinguish itself from its neighbour to port.

UK Election: Political Reflexivity?

In the aftermath of David Cameron’s achievement of both a clear victory and overall majority, the polls again appear to have been wrong. But I wonder if this is right. I do wonder whether there is an argument – hard to prove mind you – that it was the polls in the run up to the election that led to the result: at least in part. That is, the polls were right at the time about people’s voting intentions (voters were telling the truth) but as people noted what the polls were telling them about other people’s voting intentions and digested the implications, it caused them to vote differently to the way that they had intended.

This might represent a political version of reflexivity; individuals’ decisions are, in politics like finance, affected by the decisions of people around them and, indeed, by their expectations of what others are going to decide. A French friend cites the case of the Front National in France. The party, as well as its core following, has a floating constituency of people who will vote for them as a protest vote but who will not vote for them if they fear they are likely to win elections. That is, these floaters watch what other voters are likely to do and accordingly adjust their voting.

As we know, there are feedback loops in all sorts of areas and in human activity it leads to the game theory dimension. What others do affects you and what you do affects others. Therefore what you think others will do will affect what you will do and so on. Feedback loops occur in dynamic systems and there were a couple of ingredients in the UK election that created stronger feedback loops and, if you believe this line of argument, produced an outcome that was so different to what was expected.

The first, of course, is that the UK election was, by the UK’s modest standards, a complicated multi-party affair. There is, after all, less game theory in US elections since you largely have only three choices: Democrat, Republican or abstention. In the UK, we have several kingdom-wide parties – the traditional three plus UKIP – a bunch of regional parties, as well as a kingdom-wide single issue party. This was true of the previous UK election but there was so much less coverage of the smaller parties.

The second ingredient, I think, was that voter preferences were more complex reflecting the weightiness of the debate. Even in a multi-party system, if voters have only strong positive single preferences, there is not a lot of gaming. You want one particular party and that is that. But I suspect that many voters had more complex preferences. They may have positively wanted A but also negatively not wanted B. Moreover, what if the preferences were multiple and negative preferences were stronger than the positive. They may have wanted a lot of A, or a bit of both C and D, but definitely not, under any circumstances, B.

Which points up that an election is a distinct dynamic system. It is dynamic between elections but then stops being dynamic on election day. So, it was reasonable for voters to express their positive single preference to pollsters because that is what they were asked to do. Then, however, as election day neared, voters saw what options were actually available, given others’ preferences, and adjusted. I may have wanted A and definitely not B. But that was not available, given others’ preferences. So, in order definitely not to get B, I had to forego A and get a lot of C.

This flurry of last minute activity resembles, to an extent, an Ebay auction. The item goes on auction to close at some point in the future. Buyers might at the outset make some modest bids but most of the action takes place in the run up to the auction closing – the moment the system stops being dynamic. I think what I am saying is that it should be no surprise that the polls were consistent, and apparently wrong, in their predictions until the last moment.

So what? A narrative has emerged in which the Conservatives were always going to win really and that Ed Milliband had always been a disaster for Labour, and voters had simply fibbed to the pollsters. That is, a Conservative victory was knowable in advance. May be. May be in part. But I think there was a lot of real surprise, it was hard to know in advance, it was the outcome of a complex game amongst millions of voters and so the subsequent lionizing of David Cameron and demonizing of Ed Milliband is probably overdone.

Too Much Wealth or Too Much Debt

Thomas Piketty worries that levels of private wealth are high, rising and unequally distributed, and public wealth is low. This voice from the left says that public policy is needed to curb this growing inequality. At the same time, voices from the right worry about the still very high levels of debt in the global economy and in individual countries; we are borrowing our way to ruin. But aren’t these things the two sides of the same balance sheet? Is not debt high because wealth is high?

Piketty measures private wealth as a multiple of GDP. We are at present around five times GDP in the big Western economies. His summary of the historical time series suggests that this is high and in line with previous historic peaks, such as the late nineteenth century when private wealth reached five to six times. The European catastrophe of the first half of the twentieth century saw it fall sharply. His concern is that since returns on wealth (or investment returns) are larger than GDP growth, so private wealth as a multiple of GDP will grow. And, what’s more, it will be concentrated in fewer hands.

Yet, every quarter, I look at tables of the total stock of debt of certain countries compared to GDP. Generally, levels have fallen since the crisis but, compared to the long term, are higher than they have ever been. Those of a conservative economic disposition fear that these remain unsustainable levels of debt, which, one day, will ignite and blow up the global economy. Piketty worries we are getting too rich, conservatives worry that we shall soon be poor.

Putting aside who is right and which is the most worrisome, they are both the same problem. Gross levels of wealth in the global economy have risen enormously – relative peace, technology based productivity gains, end of command economies. Debt levels have risen commensurately. But the net wealth position has also risen. We have a great deal of wealth, we have a lot of debt but the net position is, for the moment, good.

Cheaper Oil and Higher Car Insurance Premiums

Lower petrol prices could well lead to higher insurance premiums: one example of how relative prices will change as oil prices fall. Consumers will enjoy more disposable income released by lower energy prices, be they at the petrol pump or in household heating or lower prices for goods, including food, with high energy content. One reasonable guess at what they will do with the spare cash is that they will use their cars more.

If you make the reasonable assumption that accidents are accidents, then if you drive more, you are more likely to have an accident. Moreover, if everyone else is driving more and car density, users on the road, goes up, you are yet more likely to have an accident. So, we are likely to see more accidents. More accidents means more claims on the car insurers who, having to pay out more to drivers, will start making less money, and perhaps losing money, on their car insurance businesses. So, insurance premiums will have to rise simply to cover the cost of more accidents and more repairs.

There may be an additional element. if there are more accidents, there will be greater demand on garages and body shops for repairs. In the short term, at least, they are likely to put up prices to deal with demand. It is possible, at the same time, that these garages will anyway be busier because more driving will also mean more repair work arising from greater wear and tear. So the car insurers will not only be facing more insurance claims but possibly more expensive individual bills from the garages.

This is not to say that the disinflationary impact of lower energy prices will be balanced by price changes in other areas. More that the effects of the fall in the price of oil, if sustained, will reverberate for a while and may cause some upwards price changes in other areas. It will take a while for this to work through.

I also feel this illustrates, how the fall in energy prices might enhance economic velocity. In the high oil price world, consumer dollars were exported to the oil producing countries who would accumulate surpluses, deploy them into the international financial system whence they would eventually work their way back to deficit accumulators. It was all a bit cumbersome. In the new world, consumer dollars are instead spent on highway restaurants, car maintenance and insurance premiums, or other goods and services. These businesses will still accumulate surpluses – profits – but on smaller scale and more likely to be deployed through the local or regional financial system: a more nimble and reactive system.

Oil and Real Returns

If oil prices stay low, real interest rates should start to rise. If, indeed, real yields do start to rise, it matters for global investors since US government asset prices are a floor for many markets. In the round, it will tend to move capital from low yielding and carry-trading activities to high return ones. Why would you put up with a few percent yield on a real estate asset if the US government is paying the same return net of inflation and no risk?

Oil and Real Yields

A favourite chart of mine is the regression of oil prices against the yield on US TIPS. It shows a clear and significant inverse correlation. That is, real yields are high when oil prices are low and vice versa. Real yields were above 4% in the late ’90s, when oil was down towards US$10, and they started falling as oil prices rose through the early and mid noughties. During the financial crisis, oil prices fell as real yields rose and then this reversed when oil prices recovered while real yields became negative. It is noteworthy that yields started rising a little before oil prices started their recent fall.

(TIPS are US Treasury Inflation-Protected Securities, the equivalent of indexed linked gilts. If you own a TIP, the US government pays you inflation plus a yield. This yield is therefore a real yield since it comes on top of inflation.)

The question is how are oil prices and real yields linked. My view is that it is all about surpluses. If oil prices are high, it generally means that oil producers are accumulating surpluses – Russia, Gulf states etc are receiving dollars for this oil. They have to re-cycle this surplus back into the oil-consuming countries. The problem is that it is, for a bunch of reasons, very difficult efficiently to re-invest that capital back into productive activities in the oil-consumers.

First, the oil exporters worry that the good times will not last so they put some capital in central bank reserves, which tend to be invested in safe, low yielding US and European government debt. Second, it is just plain hard for a few people sitting in the Gulf, smart and well-intentioned though they be, to decide the best place to invest money. Third, some of the surplus anyway ends up in unproductive outlets, such as luxury assets. Finally, there are high transaction costs for oil exporters to re-invest in oil consumers. There are lot of intermediaries along the route travelled by the re-cycling dollars all of whom have to be paid.

Consider the alternative. If there were low oil prices, there would be no surpluses. Rather than lots of US dollars ending up in a few hands in the oil producers, they would end up in the oil-consuming nations spread among many hands. All other things being equal, these dollars are more likely, in this fashion, to be more efficiently deployed.

In fact, the oil surpluses are a subset of the wider surpluses that were accumulated by the big exporters, including Germany and China, during the 2000s. The Chinese and German trade surpluses had an energy component. The petrodollar surpluses were not just about Western demand. China was importing oil in order to manufacture goods to sell to the West and still accumulating huge net surpluses. The strong negative correlation between oil and real yields arises not just from the inefficiency generated by oil surpluses but from the inefficiency of the web of imbalances in the global economy. Just imagine how difficult it was for the central bank of China to re-invest the trillions of dollars of reserves that it had accumulated.

These global surpluses are in decline. China is restructuring of its economy from production to consumption and Germany is unable to sell as much as before to the Eurozone periphery. So, to some extent, the fall in oil prices is an aftershock of falling trade imbalances but it is a useful marker for this broader trend and what it means, in due course, for real yields.

Efficiency or Dignity

A seemingly eternal dialogue of the deaf between right and left is that over the role of the individual; whether the individual should be considered as a consumer or as a producer.

Empowering individuals as consumers renders an economic system efficient and productive. The needs and wants of consumers are revealed to the production side of the economy. The price mechanism efficiently transmits the relative value of different products and thus the differing profit margins of different activities. Entrepreneurs can deploy capital in the most efficient manner and production managers can optimise their production. I would add that this path is also the more sustainable since it emphasises efficiency, particularly if you use the price mechanism to bring externalities into the economic system.

But when you talk of consumerism and the now generation, it is with disappointment or contempt. Going out and buying as much as we can and then talking about it is not well received. While we might want to impress a girl by describing what we own and can buy, it would be different it we wanted to convey a sense of moral worth. We would then want to talk about what we do. It is no accident that you turn to your neighbour at dinner to ask what do you do and not what do you consume. It is a question that is meant to be flattering.

It is by working, or doing, that we have dignity and a sense of self worth. We may just be adapting to a harsh reality. After all, we generally spend more time working than consuming; even allowing for a Welfare State, our ability to consume is constrained by our ability to work and not the other way around. There was a time when to be leisured was dignified, although I would note that leisure often meant working gratis as a JP, or some other public role.

Moreover, it is one of life’s ironies that it is in our consumption that we see inequality. While working, we are more equal. There may well be hierarchy but it is in a common purpose and will usually either conform to relative, and hopefully evident, ability or, at the least, to, much more obvious, relative age or seniority. It is when we take the hierarchy of work and production, and turn it into a hierarchy of consumption that inequality becomes evident.

Yet we know that exalting the role of the individual as a producer and developing public policy to support production leads us to nationalised industries, subsidies, overmanned industries and economic failure. There are endless historical examples of which the Eurozone crisis is but the latest. Moreover, a production focused economy is unlikely to be the more sustainable. Resource efficiency comes second to worker status.

So the real topic of debate is not whether to exalt the individual as consumer in order to create an efficient economy or whether to exalt the individual as producer in order to enhance individual dignity and thus general welfare. The topic is how to get an efficient economy whilst allowing individuals to find the dignity of work.

Inequality – how much is inherited?

How much of the equality about which we nowadays talk is inherited or passed down, and how much is temporary and inter-generational?

On Friday 19 December, I attended a seminar at London Business School where Thomas Piketty discussed his work on inequality with challenges from Gavyn Davies and the chair of the debate, Matthew Bishop of the Economist.

Piketty’s arguments, summarising his book, seem to be twofold. First of all, he shows that income and, more importantly, wealth inequality, have been increasing since the immediate postwar period and, what’s more, neither inequality shows any sign of falling. He attaches more importance to wealth than income inequality because the former is more persistent. Although you know this is coming, his second, and separate, argument is that this is bad thing and public policy makers should respond, in particular, through wealth taxation.

Gavyn Davies’ critique was, to my ear, also twofold. First, he used Piketty’s charts to show that the increase in inequality since the mid-twentieth century low point was, with a historical perspective, a return to normal. So, while you might want to do something about inequality, you cannot argue that you should do so because the current levels of inequality are unusual. Second, he argued that the recent increase in wealth inequality was coming to a natural close. The sharp rise in wealth inequality was largely due to the fall in the risk free rate and the concomitant rise in asset values. This was temporary.

Michael Bishop’s contribution was more anecdotal but he seemed to be saying that the rise in billionaire philanthropy, particularly in the US, meant that the wealthy were voluntarily reducing inequality by giving their wealth to good causes.

What none of the speakers helped me understand is what part of the income and wealth inequality that we see is persistent and which temporary. What part of the sum of inequality reflects the persistent income and wealth poverty of social groups, which is passed from parents to children, and what part reflects inequality between generations. Through our lives, most of us occupy at different times different points on the income and wealth distributions.

My sense is that part of the rise in inequality comes from the intersection of greater longevity, low inflation and interest rates and the privatisation of education. Longevity means that death-based taxation has steadily lesser impact on wealth distribution; an estate, be it modest or large, is taxed less often. Low inflation and interest rates protect financial wealth. And young people who self-finance their way through higher education emerge with negative wealth and low income, which is temporary.

What you do about inequality is another matter. You might care as much about inter-generational equality as inequality between social groups. But it is probably fair to say that the policy measures are likely to be different.