From Thatcher to Trump and Brexit: my seven lessons learned after 28 years as Guardian economics editor

 The free market experiment has failed, free trade is out, and populism is rife but it can be defeated if the left can galvanise ideas into a credible plan writes Larry Elliott in The Guardian

Sun 10 Nov 2024 17.26 GMT

Margaret Thatcher was prime minister and Nigel Lawson her chancellor of the exchequer. Neil Kinnock was leader of the Labour party. The iron curtain separated Europe.

Across the Atlantic, Ronald Reagan’s second term in the White House was drawing to a close. Donald Trump floated the idea that George Bush might want him as his running mate in the looming US presidential election, an overture Bush described as “strange and unbelievable”.

This was the political backdrop when I joined the Guardian in 1988 – the year before Tim Berners-Lee invented the world wide web, when mobile phones were in their infancy and the climate crisis was just starting to become a hot political issue.

It was a time when free market ideas ruled. A combination of high inflation and recession – stagflation – in the 1970s had led to a crisis of postwar social democracy and given rise to a new set of beliefs: privatisation, deregulation, tax cuts paid for by shrinking the state, curbs on the power of trade unions, the dismantling of capital controls. All this would give capitalism its mojo back, leading to wealth creation that would trickle down from those at the top to those struggling at the bottom.

Since this is my last column after more than 28 years as the Guardian’s economics editor, I thought I would devote it to some lessons learned during my time on the paper.

Lesson No 1 is that the free-market experiment has failed, as some of us said it would all along. Wealth did not trickle down, and instead the gap between the haves and the have-nots widened. The workers laid off when the factories closed in northern England and the US midwest did not find new well-paid jobs but were either thrown on the scrapheap or found low-paid insecure work in call centres and distribution warehouses.

Financial speculation ran rife once controls on capital were removed, but growth rates in the west were slower than in the postwar heyday of social democracy. Warnings of trouble ahead were ignored until the world’s banking system came close to collapse in the global financial crisis of 2008. At which point, policymakers abruptly ditched free-market values and rediscovered the virtues of state ownership, interventionist industrial strategies and demand management.

It's more than a decade since the financial crisis. Where's the recovery?

Larry Elliott

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But only temporarily. Lesson No 2 is that ideas matter. The near death of the banks provided an opportunity to forge a new progressive approach to the economy in the shape of a Green New Deal, but it was not taken. In part, that was because various parts of the left – the Keynesians, the greens, the Marxists – all had differing views on what needed to be done. In part it was because the rich and powerful used their money and influence to stymie any hope of real change. In part, it was because of the timidity of parties of the left.

The upshot is that there has been no equivalent of the Thatcher-Reagan revolution of the 1980s, even though the crisis of neoliberalism in 2008 was just as profound as the collapse of social democracy in the 1970s. A form of zombie capitalism has staggered on for a decade and a half, kept alive by cheap money liberally provided by central banks. Ultra-low interest rates have failed to boost investment. Real wage growth has been nugatory.

Those at the sharp end of economic failure looked to parties of the left for answers to their concerns: low pay, job insecurity, run-down public services, a fear of crime, the consequences of mass immigration. What they got instead were lectures about the need to eat better, smoke and drink less, and to stop being such bigots.

Trump’s victory last week shows what happens when the left first abandons its natural supporters and then tells them what to think and behave. That’s lesson No 3: populism will continue to flourish until the left comes up with a credible and deliverable economic plan.

Trump won because he promised to give voters what they wanted rather than what America’s liberal elite thought they ought to want.

Trump’s impending return to the White House highlights a fourth lesson from the past 36 years: the world’s economic centre of gravity – symbolised by the emergence of China and India as forces to be reckoned with – has moved from west to east and from north to south. To be sure, China has some deep structural problems, but it has lifted 800 million people out of poverty since the late 1970s, has developed expertise in hi-tech manufacturing, and poses a bigger threat to US hegemony than the Soviet Union ever did. 

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Lesson No 5 is that globalisation has gone into reverse. The new cold war between China and the US, the vulnerability of global supply chains exposed by the Covid pandemic, and voter demands that their political leaders reassert control over the economy are all leading to a revival of the nation state. Free trade is out; protectionism is in. Governments are responding to pressure to curb migration. Activist industrial strategies are back in vogue.

The European Union is finding adjustment to these new challenges difficult. That’s hardly surprising, given that the EU was – as Wolfgang Streeck notes in his book Taking Back Control? – the “perfect realisation” of post-communist neoliberal economic globalism: centralised, depoliticised, bureaucratic and wedded to free movement of people, goods, services and capital.

As the Guardian’s resident Eurosceptic, I have to say I have never seen anything especially attractive in the EU’s economic model. Nor can the project of ever-closer union remotely be called a success. The EU is sclerotic and seething with voter rage at the inability of its governments to raise living standards or control immigration.

So my sixth lesson is that those who say Brexit has failed are not just jumping the gun but need to look across the Channel, because that’s where the real failure lies. Brexit was to Britain what Trump’s victory was for the US: a revolt against the elites and a demand for change. It offers the chance for a party of the left to do things differently. Labour can seize that opportunity.

That’s not a conclusion, I am well aware, that most of my readers would agree with, but one of the joys of working for the Guardian is that it encourages – indeed welcomes – challenges to the orthodoxy.

So my final lesson from the past 36 years is this: it is always worth questioning the status quo. Just because something is the received wisdom doesn’t mean it is right.

How Accurate are the Election Predictions of India's Illegal Bookmakers?

Girish Menon

'Satta Bazaar' is the name given to Indian bookmakers. Bookmaking is banned in India, however there exists what appears to be a huge underground network of bookies and punters who take bets on most events where the outcome is unknown. Here, I am going to test the bookies' predictions on the Indian election results with the actual results which will be available to the public on 4 June 2024.

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Indian Elections 2024 - A Personal Note

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Economic Truism: The Wisdom of Crowds

In economics, market prices, such as share prices in stock markets, are generally considered an accurate reflection of ground realities and available information. This is because share prices are determined by the collective buying and selling decisions of numerous investors, each acting on their analysis of a company's fundamentals, future prospects, and other relevant factors. Similarly, bookmaker odds and prices in betting markets are driven by the weight of money being placed on different outcomes, reflecting the collective assessments and expectations of bettors. Just as share prices adjust dynamically to incorporate new information, bookmakers continuously update their odds based on the flow of bets, aiming to balance their books and minimize risk exposure. This market-driven price discovery mechanism ensures that both share prices and bookmaker odds serve as reasonably accurate reflections of the underlying realities and expectations of market participants.

So let me list the predictions of various Indian bookmakers as mentioned in Times Now's programme on 1 June 2024 around 5-6 pm.

Satta Bazaar on 1 June 2024	BJP Seats	NDA (BJP’s alliance) seats	Actual Results on 4 June 2024
Phalodi	270-300		BJP-240, NDA-293
Palanpur	216	247
Vijayawada	270-290	300+
Hyderabad	270-290	300+
Ahmedabad	301-303
Karnal	235	263
Belgaum	223	265
Kolkata	218	261
Indore	260	283
Mumbai	295-305

Then there are the exit polls, most of them seem to predict a return of the BJP government with probably more seats than in 2019. However, I have preferred to stick to the bookies' predictions because the bookmakers and punters are betting with their money and so it will help me test the economic principle that market prices (satta bazaar prices) reflect reality accurately.

Advice for Small Stock Market Gamblers

 Tim Harford in The FT

The pages of the Financial Times are not usually a place for legends about ancient gods, but perhaps I can be indulged in sharing one with a lesson to teach us all. 

More than a century ago, Odin, All-father, greatest of the Norse gods, went to his wayward fellow god Loki, and put him in charge of the stock market. Odin told Loki that he could do whatever he wanted, on condition that across each and every 30-year period, he ensured that the market would offer average annual returns between 7 and 11 per cent. If he flouted this rule, Odin would tie Loki under a serpent whose fangs would drip poison into Loki’s eyes from now until Ragnarök. 

Loki is notoriously malevolent, and no doubt would love to take the wealth of retail investors and set it on fire, if he could. But when faced with such a — shall we say binding? — constraint, what damage could he really do? 

He could do plenty, says Andrew Hallam, author of Balance and other books about personal finance. Hallam uses the image of Loki as the malicious master of the market to warn us all against squandering the bounties of equity markets. 

All Loki would have to do is ensure the market zigged and zagged around unpredictably. Sometimes it would deliver apparently endless bull runs. At other times it would plunge without mercy. It might alternate mini-booms and mini-crashes; it might trade sideways; it might repeat old patterns, or it might do something that seemed quite new. At every moment, the aim would be to trick investors into doing something rash. 

None of that would deliver Loki’s goals if we humans weren’t so easy to fool. But we are. You can see the damage in numbers published by the investment research company Morningstar; last year it found a shortfall in annual returns of 1.7 percentage points between what investors make and the performance delivered by the funds in which they invested. 

There is nothing strange about investors making a different return from the funds in which they invest. Fund returns are calculated on the basis of a lump-sum buy-and-hold investment. But even the most sober and sensible retail investor is likely to make regular payments, month by month or year by year. As a result, their returns will be different, maybe better and maybe worse. 

Somehow, it’s always worse. The gap of 1.7 percentage points a year is huge over the course of a 30-year investment horizon. A 7.2 per cent annual return will multiply your money eightfold over 30 years, but subtract the performance shortfall and you get 5.5 per cent a year, or less than a fivefold return in 30 years. 

Why does this happen? The primary reason is that Loki’s mischievous gyrations tempt us to buy when the market is booming and to sell when it’s in a slump. Ilia Dichev, an economist at Emory University, found in a 2007 study that retail investors tended to pile into markets when stocks were doing well, and to sell up when they were languishing. (Without wishing to burden the long-suffering reader with technical details, it turns out that buying high and selling low is a bad investment strategy.) 

One possible explanation for this behaviour is that investors are deeply influenced by what they’ve seen the stock market doing across their lives so far. The economists Ulrike Malmendier and Stefan Nagel have found that the lower the returns investors have personally witnessed, the less they are likely to put in the stock market. This means that bear markets scare investors away from their biggest buying opportunities. 

Another study, by Brad Barber and Terrance Odean, looked at retail investors in the early 1990s, and found that they traded far too often. Active traders underperformed by more than 6 percentage points annually. Slumbering investors saw a much better performance. The sticker price of making a trade has plummeted since then, of course. Alas, the cost of making a badly timed trade is as high as ever. 

 Morningstar found that the gap between investment and investor returns is largest for more specialist investments such as sector equity funds or non-traditional equity funds. The gap is smaller for plain vanilla equity and smaller still for allocation funds, which hold a blend of stocks and bonds and automate away investor choices. That suggests that the investors who are trying to be clever are the most likely to fall short, while those who make the fewest possible decisions will lose out by the smallest amount. 

 I am always hearing that people should be more engaged with investing, and up to a point that is true. People who feel ignorant about how equity investing works and therefore stick their money in a bank account or under a mattress, are avoiding only modest risks and giving up huge potential returns. 

But you can have too much of a good thing. Twitchily checking and rearranging your portfolio is a great way to get sucked into poorly timed trades. The irony is that the new generation of investment apps work the same way as almost any other app on your phone: they need your attention and have plenty of ways to get it. 

Recent research by the Behavioural Insight Team, commissioned by regulators in Ontario, found that gamified apps — offering unpredictable rewards, leader boards and badges for activity — simply encouraged investors to trade more often. Perhaps Loki was involved in the app development process? 

I’ve called this the Investor’s Tragedy. The more attention we pay to our investments, the more we trade, and the cleverer we try to be, the less we will have at the end of it all.

A Religious Market Theory Explained

Nadeem F Paracha in The Dawn

In 1987, the American sociologists Rodney Stark and William S. Bainbridge formulated a ‘Religious Market Theory.’ The theory is a critique of the ‘Secularisation Thesis.’ The secularisation thesis was initially developed by the German sociologist Max Weber in the early 20th century. In the next five decades, it was further evolved by numerous scholars.

To Weber, due to modernisation, especially from the late 18th century onwards, societies entered a process of ‘spiritual disenchantment.’ Space for ‘pre-modern’ beliefs in magic, faith and superstition shrank and people began to adopt more rational modes of thinking.

Even non-Western societies started to adopt models of modernisation and, indeed, here as well, the traditional variants of religion began to decline. They were replaced by secularised formations of traditional faiths, framed and monopolised by the state.

But the secularisation thesis came into question when, from the mid-1970s onwards, the exhibition of religiosity, especially in modernised Muslim-majority nation-states, began to grow.

In the 1980s, when religiosity saw an increase in the US as well, Stark and Bainbridge formulated their religious market theory, challenging the secularisation thesis. The religious market theory suggests that when religiosity declines, it eventually revives itself, because the decline opens up spaces for new faiths and modified versions of the old faiths to emerge.

Stark and Bainbridge saw the rise and decline of religiosity as a cycle, which moves like markets do in capitalist settings. Religions which fail to adjust to the needs of changing conditions, fall by the wayside and lose followers. Readjusted religions and new faiths begin to emerge in a scenario where religiosity seems to be receding.

Gradually, though, new and readjusted variants are able to revive interest in faith, by providing services and products that are better suited to meet the needs of changing conditions.

According to Stark and Bainbridge, this cycle produces a diverse collection of faiths, cults, sects and subsects, which compete against each other in the ‘marketplace of faiths’ and improve to attract followers. The religious market theory posits that this renews an interest in faith and religiosity.

In 19th century India, during the complete fall of the Mughal Empire and the mushrooming of British colonialism, the established variants of Islam began to struggle to keep pace with the changing conditions. It seemed that the modernity introduced by the British was rapidly secularising the polity. But as the old religious ethos dwindled, new variants emerged to address the changing needs of India’s Muslims.

On the one hand, new Sunni sects such as Deobandi, Barelvi and Ahl-i-Hadith sprang up and, on the other, the Ahmadiyya, the Ahl-i-Quran and Muslim Modernism emerged. They competed against each other, promising the most suitable narratives to India’s ‘depressed’ Muslims and, in the process, gathering followers — more importantly, followers who had political and economic clout.

From the mid-19th century till the 1920s, the marketplace of faiths in South Asia flourished with new variations of Islam and Hinduism. The variants were products/brands, and their followers were consumers. This indeed witnessed a renewed interest in religion and religiosity.

However, from the late 1940s, when India split into two nation-states, Bharat and Pakistan, the state in both countries decided to monopolise the marketplace of faiths, through an overarching meta-narrative.

India formulated a nationalist secularism that sought to build a socialist democracy. It was to provide economic services that religious organisations had been offering to attract followers. The state in Pakistan began to shape a nationalist-modernist variant of Islam and it regulated the marketplace of faiths by bringing its shops and products under the state’s control.

According to some contemporary proponents of the religious market theory, the presence of a centralised and ‘official’ faith eschews religious diversity. It nationalises the marketplace of faiths. This causes a decline in religiosity, as has been the case in various Scandinavian countries and in Britain.

The state in India (through nationalist-secularism) and Pakistan (through modernist-nationalist Islam) attempted to do this. Religion did not decline as such, but religiosity did.

In the 1970s, new economic and political challenges emerged in Pakistan and India. These also challenged the nationalisation of the marketplace of faiths. In Pakistan, political elites tried to absorb the alternatives offered by Sunni and Shia sects and subsects. They privatised the marketplace and began to gather fresh followers, who could not find remedies anymore in the centralised state-approved variant.

By the 1980s, the marketplace of faiths was once again booming. In Pakistan, the state continued to try absorbing the new variants by discarding the old modernist variant. But, as the middle class and the lower-middle class segments expanded, they became the most active consumers of new variants, thereby re-energising the marketplace of faiths.

These variants ranged from renewed and modified versions of evangelical Islam, to the more radical versions of Sunni and Shia sects and subsects. Religiosity revived itself.

In India, economic liberalisation weakened the monopoly of the nationalist-secular narrative in the marketplace of faiths. The Indian historian Meera Nanda, in her book The God Market, has closely tracked the trajectory of the expanding elite and middle-income groups in India, from being consumers of the nationalist-secular narrative, to becoming the most prominent consumers of Hindu nationalism — especially after benefitting from the post-1980s ‘neo-liberal’ economic policies.

According to Nanda, these segments, who now exercise increasing economic influence, “re-ritualised and re-enchanted Hinduism.” They now view Hinduism as being inherently compatible with modern economic ideas that guarantee profitability and prosperity. This, too, is how the renewed evangelical variants of Islam peddled their narrative to the elite and middle-income groups in Pakistan.

Consequently, exhibitions of religiosity have witnessed a manifold increase in both the countries. However, within the marketplace of faiths are also variants that are problematic. These include the more reactionary manifestations of faiths. For example, those looking to undermine Muslims in India in a violent manner will shop for variants that aid the consumer to theologically justify acts of violence.

This is also true in Pakistan. There are sectarian and sub-sectarian variants in the marketplace of faiths, which ‘theologically’ validate actions of those who want to use or instigate violence against an opponent in the name of faith.

More worrying is the fact that many urban, ‘educated’ folk, too, buy these variants, especially products (in the shape of narratives) that justify or instigate violence. These are often used to demonise perceived enemies as ‘Ahmadiyya sympathisers,’ or ‘anti-Islam’.

The marketplace of faiths is now almost entirely unregulated. And the state and governments whose job it was to regulate it, too, have become consumers in the marketplace of faiths to justify their own existence.