Stumbling and Mumbling

Author: chris dillow   |   Latest post: Wed, 12 Sep 2018, 02:30 PM


Politics as risk management

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There's one point about politics which seems to me to be childishly obvious but which is under-appreciated, and which helps illuminate a number of policy issues.

It's that we don't live in a wholly knowable deterministic world in which setting policy is a matter of pulling the right levers with predictable effects. Instead, policy operates upon a distribution of uncertainties*. In some cases, the best policy is not so much one that achieves the best outcome but one which reduces the risk of bad outcomes - either the small risk of something really bad or the larger risk of moderately bad outcomes.

We should think of policy as risk management. Just as investors don't try to maximize returns but also pay some heed to avoiding risk, so too should policy-makers.

As I say, this should be childishly obvious. But let's apply it to some current issues.

- Anti-semitism in the Labour party. It seems this is mostly a matter of a few (though too many) idiots. This is low-level stuff: idiots spouting shit is normal in politics. Tolerating it, however, carries a big risk. Anti-semitic words might help to normalize anti-semitic behaviour: attacks and harassment of Jews. Low-level anti-semitism might therefore escalate. It's reasonable then to demand that Labour have zero-tolerance of anti-semitism not so much because current levels of it are a big problem, but rather as a means of reducing the risk of something worse developing.

- Calls for military action in Syria. The problem here is that we know that military ventures carry huge risks. The rule "don't start wars" might not be correct in every case. But it's a good minimax rule of thumb. It's a way of avoiding very heavy losses - of lives and money as well as political capital. Yes, interventionists are wholly right to say that inaction has consequences too. But it's not clear to me that inaction is often as potentially catastrophic as action. This is especially the case because in foreign policy William Goldman's maxim seems to apply: nobody knows anything. And Brainard's principle - that policy should be cautious where there is uncertainty - should apply to all policy, not just monetary policy.

- Cuts to police numbers. Amber Rudd claims there's no evidence these have led to rising violent crime in London. But if crime were wholly insensitive to police numbers, we could abolish the police entirely without crime rising. That seems absurd. There must therefore be some point at which fewer police leads to more crime. And we have at least one piece of evidence here that we might be around that point. Stephen Machin and colleagues show that when police were redeployed from outer London to central London after the 7/7 terrorist attacks "crime fell significantly in central London relative to outer London." That suggests police numbers do matter. Granted, we cannot prove that people have been killed as a result of police cuts. But it is surely plausible that the cuts have increased the risks some people face of suffering crime.

- Fiscal policy. Again, this is a matter of risk management. As Simon has said, the problem with austerity is that it is risky. It increases our reliance upon uncertain monetary policy - policies which our low rate of growth show to have been inadequate. On the other hand, its advocates claim that austerity reduced the risk of a bond market crisis and rising borrowing costs. Personally, I think that risk was small and manageable by QE. But the point is that the debate is about risk management.

I could of course go on: one case against Brexit, for example, is that it increases uncertainties for (to me) no offsetting benefit. Conversely, the virtue of many policies aimed at increasing productivity - better education, stronger competition policy, better financing of start-ups and so on - is not so much that they will definitely work but that they are free hits: even if they don't raise productivity they'll do little harm and perhaps some good.

Although the general principle here should be obvious to all adults (though you may well disagree with my applications of it) I fear it is under-appreciated in the media. Columnists are more often than not overconfident gobshites who fail to grasp the extent of uncertainty and boundedness of their knowledge: how often do they attach confidence intervals to their claims?

And imagine - if you can - the improbable event of a politician appearing on (say) the Today programme and saying "We cannot know the precise effects of this policy, but we hope it will at least avoid serious harm." John Humphrys would give her a horrible time. Our dumbed-down media, with its demand for certainty where none is possible, mitigates against sensible politics. "We don't know" is a phrase that should be used more often.

* I mean uncertainties in the Knightian sense: often, we cannot quantify probabilities or know their precise distribution.

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