Politics Advice to my Grandchildren

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A Letter to My Grandchildren When They Are Fifteen

When I was fifteen I listened to contemporary politicians, Wilson and Heath in the 1966 election, berating each other in morally heated terms. I wondered why there wasn't a clear right or wrong answer on these pressing policy matters. I wondered how to decide – what could be the methodology? – between the different parties' positions.

Unlike in the maths or physics I was studying, no one seemed to have a good theory.

Eventually – and after I learned some economics – I came to understand. Politics is not what it pretends to be: a search for correct answers as to how to run things (in the scientific sense). Not at all. It’s actually a system for distributing power between powerful people who represent conflicting interests, under conditions of uncertainty and limited knowledge - and varying degrees of competence, we might add.

Let’s listen to the economist Joseph Schumpeter (1883–1950): democracy is not the rule of “the people” discovering the common good. Instead it’s a competition between political groupings, usually organised as parties, for the right to govern (see Capitalism, Socialism and Democracy, 1942). Elections are not moments of truth or attempts to achieve generalised optimality; they are moments of selection. You are choosing only between elite teams representing diverse interest groups.

Finally, the tone of political debate begins to make sense. Each side is not calmly reasoning toward a shared conclusion. Each side is attempting to win by mobilising its supporters while undermining its opponents. Moral language is part of the toolkit, galvanising ‘us’ and demonising ‘them’.

Incidentally, this is why the famous GOAT, the ‘Government of All the Talents’ is a non-starter except in times of national emergency - when domestic factional struggles get to be put on hold.

The Machinery Beneath the Stage

It’s after the election when Public Choice Theory intervenes to provide the next layer of our education. It begins with a simple observation: the people inside political systems – politicians, civil servants, advisers – are not saints or neutral calculators. Like all human beings, they respond to the incentives available to them.

Politicians seek re-election. Bureaucrats seek budget, stability, and expansion of their power and influence. Voters, for the most part, remain only lightly informed because people are busy, the effort required to master public policy is large, and the influence of any individual vote is small to negligible.

Meanwhile, smaller, organised groups – industrial cartels, unions, the professions – have strong incentives to lobby for policies that benefit them... and the power and focus to succeed in doing so.

The result is that government policy tends to reflect the pressure of organised minorities much more than the diffuse interests of the majority (noting that all governments wish to keep the masses politically atomised and quiescent, which is why Populism is deprecated as so dangerous).

This stance is accentuated when the dominant governing ideology is managerialism, with political leaders who pride themselves on lacking any overarching vision, but who are content to triangulate between interest groups, thinking their role is to compute some kind of political vector sum.

How Power Settles and Hardens

Mancur Olson became justifiably famous (The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, 1982) by observing that those elite fractions strong enough to gain real power do not merely exercise it ‘in the moment’; they institutionalise it. They construct legal frameworks, regulatory regimes, and administrative practices that lock in their advantages. What begins as a contingent victory becomes a durable structure.

Each such structure generates beneficiaries, and those beneficiaries organise to defend it. Over time, society accumulates a dense network of such layers incorporating protections, subsidies, rules and exceptional treatment. Each, in the moment, could be justified. Together they form a dense web that becomes increasingly resistant to change – a de facto veto network which locks-in a stagnant status quo.

So this is Olson’s central point: democratic societies tend to become sclerotic. Not because they suddenly become foolish, but because they become crowded with entrenched interests that resist the shock of the new. Reform is not blocked by ignorance so much as conscious, organised opposition.

Machiavelli saw this long before modern economics. He observed that “there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things” (The Prince, 1532).

Those who benefit from the old order resist fiercely; those who might benefit from the (untried and embryonic) new are uncertain, hesitant, or divided. Reform is intrinsically hard, even when it is vitally necessary for the larger society.

Why Change Requires Shock

As the web of special interest groups unfolds over decades, the system slows. It becomes less adaptive, less efficient, more preoccupied with managing its own accumulated complexity; the barriers to change are thus constructed.

Significant reform so often requires a countervailing force of unusual magnitude: economic crisis, political upheaval, war, or the arrival of disruptive technologies that make old arrangements untenable. Olson noted that societies experiencing social collapse, such as Germany and Japan after 1945, often exhibited faster growth in the following decades, partly because entrenched interests had been dismantled in defeat.

Marx, in his own way, grasped part of this dynamic. He spoke of a tension between the “forces of production” and the “relations of production”. When the former advance beyond what the latter can accommodate, strain builds. Something must eventually give. Despite Marx’s legendary revolutionary optimism, it’s far from a quick process.

The Role of the Public

Where does this leave “the people”? Not as sovereign masters in the romantic sense, nor as mere dupes. Most people are busy with their own lives; rationally inattentive to national politics. They rely on heuristics: party labels, reputations, broad impressions of competence or trustworthiness. People become aware in broad outlines when the current set-up is stalled and on a road to nowhere; when their own hopes of fulfilment are being dashed.

Why You Will Not Find a Single “Right Answer”

At fifteen, I wanted a method that would tell me the correct policies, the ones I should support, just like a calculation produces a correct result.

It took me a good few years to comprehend that there are no such methods, because political questions are not of that kind. They always involve trade-offs with winners and losers and everyone fights and obfuscates for their advantage. There is no neutral vantage point from which all interests align, although all parties will pretend the opposite.

So don't look for purity in politics. You will not find it. Look instead for cui bono: who benefits, who pays, who is organised, who is left in the cold. Watch out for bad arguments: specious narratives which make you wonder how anyone could ever believe that - special interests, dressed up in the garb of universal idealism, often look like that.

Hopefully you will see more clearly than I did at your age. You will not be seduced by moral hectoring, self-satisfied self-righteousness. 

Instead, you may take quiet satisfaction in looking behind the curtain at those little men and women pulling the levers and pretending to be wizards.

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Water, Rents and Revolving Doors: Why Britain Can’t Keep Its Rivers Clean - by ChatGPT

Water, Rents and Revolving Doors: Why Britain Can’t Keep Its Rivers Clean

The British water industry is the sort of textbook case economists use when they want to both shock and depress undergraduates. You take a natural monopoly (pipes, reservoirs, treatment works), privatise it on a wave of Thatcher-style bravado, bolt on a regulator to stop the obvious gouging, and then watch—over three decades—as everyone involved learns to game the system.

The rivers brown, the debts swell, the dividends flow, and the regulator peers sternly over a spreadsheet. Public choice economics could write the script in its sleep.

The Lens: Public Choice, Not Public Interest

Public choice theory begins with a realpolitik question: what if politicians, regulators and industry executives are all just people, pursuing their own interests under the cover of lofty rhetoric? Once you accept that, everything else follows.

The water companies, their investors and their lawyers are a classic concentrated interest. They care intensely. They organise. They lobby. 

The rest of us are a diffuse interest. We care in the abstract, but it’s Tuesday night and there’s football on, so we don’t write to our MP about Ofwat’s cost of capital assumptions.

Layer onto that Tullock’s “transitional gains trap”: that the monopoly rents from privatisation were priced in at the point of sale. Try to claw them back now and you hurt current owners who can claim, with some justice, that they paid for the privilege. Politicians blanch at retrospective confiscation, so the game rolls on.

Meanwhile, regulators live inside a permanent informational fog. The companies know their true costs; the regulator must guess. To extract the truth you have to leave some profit on the table—“information rents” in Laffont–Tirole jargon.

If the regulator makes too much of a fuss they can be punished in future by even less cooperation.

What Went Wrong With Ofwat?

Ofwat was never evil, merely human. It started with decent intentions: cap prices (RPI–X), force efficiency gains, defend consumers. But three things happened.

First, the companies got clever. Price caps became puzzles to be solved: push expenditure from opex to capex (or vice versa), take on leverage to juice equity returns, pay out dividends while pleading poverty on infrastructure investment. Ofwat responded with more complex metrics (TOTEX, outcome delivery incentives). Complexity is catnip to consultants and CFOs; it is kryptonite to public legitimacy.

Second, epistemic capture. Sit in enough meetings with water finance directors and you start to see the world as they do: cost of capital curves, risk bands; not sewage in trout streams. Even if you never take a job with them (and plenty do), your priors drift.

Third, politics. Ministers want cheap bills, clean rivers, private capital off the public balance sheet, and no headlines. That quadrilateral doesn’t close. So Ofwat is nudged—not overtly—to keep the show on the road. Nudge meets nudge, and so here we are.

The Fix-It Fantasies

Now that public anger is finally boiling (brown water helps focus the mind), proposals are flying. They fall into a few conceptual buckets.

Renationalise the lot. Clean, decisive, and fiscally awkward. You either compensate shareholders (expensive) or you fight in court for years. Even after nationalisation, bureaucratic slack replaces shareholder greed unless you design governance properly. Ask British Rail’s ghost.

Nationalise the assets, franchise the operation. The state owns the pipes; private (or mutual) firms bid for 10–15 year operating contracts. This gives you “competition for the market”, Schumpeter’s creative destruction in slow motion. It also gives you periodic disruption, which Olson would applaud: entrenched coalitions must re-apply for their sinecures.

Keep it private, tighten the screws. More fines, tougher dividend locks, stricter environmental targets, maybe a “special administration regime” for the worst offenders. This is incrementalism with teeth. It can work, but only if the teeth actually draw blood—automatic penalties, not performative press releases.

Mutuals, co-ops, stakeholder boards. Sounds cuddly. Sometimes works (see Scottish Water’s hybrid model), sometimes degenerates into insider clubs with nice sandwiches. Without transparency and credible exit threats, governance reforms drift into sentimental pandering.

What Matters Conceptually (i.e. Beyond the Policy Laundry List)

Two things: contestability and commitment.

Contestability is the ghost of competition when actual competition is impossible. If a company believes it can lose its licence—really lose it—it tends to behave (perhaps after trying everything else). That belief cannot rest on ministerial whim; it needs to be embedded: sunset clauses, automatic re-tendering, pre-written failure regimes. Make rent-seeking hard work and not obviously profitable.

Commitment cuts both ways. The state must credibly commit not to expropriate honest returns after firms invest, otherwise you get underinvestment or creative accounting. But firms must credibly commit to meet service and environmental standards, or their investors will get wiped. Commitment is not achieved by speeches; it’s achieved by statute, contracts, and automatic triggers that remove discretion (and therefore lobbying targets).

The Regulator We Actually Need

A regulator that thinks like a mechanism designer, not a moralising Victorian school mistress. One that assumes everyone in the game—including itself—is a bit sly, and writes rules accordingly. Radical transparency (publish the data, all of it), rotating oversight panels, citizen juries for tariff changes, real-time performance dashboards. Make the rent-seeking noisy, public and embarrassing. Sunlight is cheaper than armies of consultants.

And every decade or so, smash the crockery. Reset licences, reopen the structure, let fresh blood in. Olson’s sclerosis is not cured; it is managed, like gout, with periodic purges.

Conclusion: Stop Pretending

We pretend the water companies are motivated by civic duty; they pretend to be regulated to within an inch of their lives; Ofwat pretends it has all the information it needs; ministers pretend you can have Scandinavian rivers on Mississippi tax rates.

Public choice theory’s impolite intervention is to say: stop pretending. Design institutions for the people we have, not the angels we were promised.

Until we do, expect more debt, more dividends, and more euphemisms for sewage.

Government as a stationary bandit

Amazon link

I would call this cynical, except it's economics:

“Consider a roving bandit who roams from village to village, looting village residents. The roving bandit will take as much as he can before moving on to his next target. The bandit gets no advantage from leaving anything behind for the people who are plundered. The roving bandit must continually be on the move to find new targets, and resources are wasted on both sides as the bandit uses force to try to plunder the villagers and the villagers use force to try to repel the bandit.

An alternative strategy would be for the bandit to occupy a location permanently, becoming a stationary bandit, periodically taking resources from those in the village.

The incentives are different for the stationary bandit, who would then want to cultivate the productivity of those he plunders, so there is more to plunder in the future.

Because the income of the stationary bandit comes from the productivity of those under him, the stationary bandit also has an incentive to protect them, both from opportunistic individuals in their own village and from outside predators. It is easy to imagine that a productive village would attract the attention of other predators who might be inclined to attack and plunder the village. So, the stationary bandit has an incentive to protect those who provide the stationary bandit’s income.

It is easier to gain compliance from people when they agree to comply than when they are forced, so the stationary bandit has an incentive to get those under him to view his activities as legitimate: to present himself as a benevolent leader rather than a bandit.

If he can convince citizens to recognize him as a king, and can convince them that it is to their advantage to pay him taxes in exchange for the protection he offers, it will be less costly for him to maintain a system in which citizens view the transfer of resources to him as legitimate taxation rather than plunder.

The stationary bandit has an incentive to establish institutions such that citizens view it as advantageous to transfer resources to the ruler in exchange for protection.

The ruler also has an incentive to produce public goods if they enhance the productivity of citizens, because greater productivity means there is more to tax. And, the ruler has an incentive to place constitutional limits on his power to tax, to maintain incentives for citizens to be productive. If the ruler is perceived as a threat to confiscate everything the citizens have, they will not have much of an incentive to accumulate wealth.

Establishing a council of citizens who must approve any tax increases could work to the mutual advantage of both the ruler and the citizens, making citizens more productive and ultimately tendering more tax revenue from their increased productivity.

If a stationary bandit envisions remaining in place for a long time, he will have an incentive to establish institutions that would be very similar to what citizens might agree to from behind a veil of ignorance. Thus, when thinking about optimal constitutional rules, there may not be that much difference between the types of rules people would voluntarily adopt and those which might be imposed by a conquering group.

This public choice approach to constitutional rules offers an interesting contrast to the public goods theory that economists often use to explain government production.

For example, public goods theory suggests that government produces national defense because it is a public good that would be underprovided in the market.

This public choice approach says that government produces national defense because it benefits those in government by protecting the productivity of those who pay taxes to government. Public goods theory depicts government as a benevolent provider of a good that the selfish private sector will underprovide to themselves.

Are people in government really more benevolent than people in the private sector? This public choice approach depicts the production of national defense as a mutually advantageous exchange in which everyone acts to further their own interests, so is more consistent with the assumptions economists typically assume about individual behavior.” (pp. 131-133).

This is not such a new idea. Razib Khan recounted how:

"During the Mongol conquest of Northern China Genghis Khan reputedly wanted to turn the land that had been the heart of the Middle Kingdom into pasture, first by exterminating the whole population.

Part of the motive was to punish the Chinese for resisting his armies, and part of it was to increase his wealth. One of his advisors, Yelu Chucai, a functionary from the Khitai people, dissuaded him from this path through appealing to his selfishness.

Chinese peasants taxed on their surplus would enrich Genghis Khan far more than enlarging his herds. Rather than focus on primary production, Genghis Khan could sit atop a more complex economic system and extract rents."

Public choice theory is a lot better than the soppier humanities, which assume everyone is endlessly caring and benevolent (and should therefore be punished if they are not). But in starting from the fiction that society is simply a uniform set of individual, selfish, rational agents making more-or-less informed utilitarian choices, it abstracts from the historical evolution of class relations, the conditions of social reproduction, and human nature itself.

That's not to say that under certain localised conditions of stabilised atomisation, it can't be quite accurate and predictive, as János Kornai documented.

"Love thy neighbour" .. why, exactly?

The following observation (Richard Dawkins, The Selfish Gene) has always struck me as both profound and politically illuminating.

"For relationships as distant as third cousin (2 x (1/2)⁸ = 1/128) we are getting down near the baseline probability that a particular gene possessed by A will be shared by any random individual taken from the population."

The 'population' we are talking about here is the co-ethnic population. For example, English people whose grandparents on both sides were also English.

What would you think if you saw someone walking down the street greeting everyone they met with a warm smile and a cheery greeting as if they were meeting their brother or sister? I'd cross over! People at less than 1% relatedness don't stir any innate kin-altruistic feelings in us. And so to the tragedy of the NHS and other 'caring' bureaucracies. Apart from rare super-empathic individuals (aka 'saints') most staff don't have any emotional investment in their clients at all - and why should they? So the default mode is neglect - as on the street. People who create social policies are often smart, highly urbane and empathic individuals who implicitly believe the masses are just like them. Organisations, processes and laws are repeatedly designed as if no-one would ever try to game them for their own convenience. If only!

The other implication concerns your personal contribution to the gene pool. After eight generations your descendants will be no closer genetically to you than a co-ethnic stranger today in the supermarket. So stop worrying about your spurious genetic immortality! But doesn't this contradict evolution? Not really: if the human race was today undergoing strong selection (i.e. lots of people were being killed off by the 'environment' before reproducing) then as a reproducing survivor your genes would disproportionally contribute, and skew, the future gene pool: they would matter. However, in advanced countries humanity today is subject only to weak selection - the gene pool is 'stationary' - so your contribution really doesn't matter at all.

Small caveat: if you're intelligent and civilised and don't reproduce, be aware that the rather dim and less civilised are reproducing just fine: they don't have the distractions of interesting career options. This of course also steers the gene pool so it's not quite stationary.

"The Architecture of Democracy"

This is the title of a book I would like to read (not the American book of this name which already exists and appears to believe the eventual worldwide triumph of 'democracy' is assured).

The book I want to buy and read will be written in the paradigm of sociobiology. It will identify the chief reasons why small-scale and relatively informal governance models which work for tribes or kin-groups, c. 100 strong, don't scale.

Apart from the obvious requirements for hierarchy as the size of a community gets into the tens or hundreds of millions, I would expect a careful treatment of corruption, nepotism and bureaucratisation; the power of vested interests to capture parts of the state and government, the success of populist governments implementing policies which bring a state to ruin, and the abrogation of civilized norms when dealing with out-groups.

Democracy addresses these issues by a careful assignment of limited, but real, power to leadership teams which can be thrown out (almost always against their wills!) by the mass of citizens in a controlled and non-violent process.

Does it work? Not always: it didn't in Chile under Allende, when the policies adopted seemed to be wrecking the economy.

Lenin outlined the soviet model (soviets are elected councils), which on paper creates a form of state which is an organic expression of the self-activity of the masses. What could be more democratic, defined as a state-architecture which genuinely represents the barely-mediated interests of all?

In practice it didn't model the operational arm of Government, the bureaucracy, which in best public choice theory mode promptly took over and transformed the soviets into empty shells. I believe Lenin's architecture here was fundamentally flawed and the outcome inevitable. (Trotskyists disagree .. but comrades, it has actually never worked anywhere, has it?).

Democracy has many bugs but is it really the least bad of all possible architectures? I'm not convinced - we surely have the right conceptual tools now to design credible alternatives - but I still can't seem to find that book on Amazon ...

(Perhaps China will eventually get round to inventing it  *wry smile*).

Public Choice Theory and Torture

Public Choice Theory accounts for the behaviour of politicians, bureaucrats and state institutions as if they acted in their own self-interest. Stated like that it seems obvious, but it is surprising the number of people - especially media pundits - who believe in the essential neutrality or even benevolence of institutions.

Everyone who has not had their brain curdled by political correctness knows that torture frequently works, provided you ask the right questions and check the answers for accuracy. We therefore don't abhor torture for utilitarian reasons, but for reasons of public choice theory.

In the many countries where torture is routine, the police and security services use torture to get easy convictions, frame political opponents and terrorise dissenters.

None of this is in the public interest, and the only way to avoid such outcomes is to delegitimise torture altogether. We all know that torture will still occur where the absolute need to get information trumps the political costs of keeping its use absolutely covert.

There, what was so intellectually difficult about that?