In Praise of Frugality and Money Mustaches

Paul Solman is consistently excellent in his Making Sense reports on the PBS Newshour each Thursday. He chooses wonderful topics and explores them with whimsy and depth, and he is not afraid to challenge common perceptions. I am never bored and I always take away something useful.

Last Thursday he introduced me to a blogger I had not heard of, writing under the brand of Money Mustache. The founder of the blog is a guy who managed to retire at thirty, and claims he has a method for most others to achieve something similar. Having felt that I did pretty darned well in retiring at fifty, obviously way behind target for these people, my interest was immediately piqued.

At the heart of the blog is the insight that a certain amount of wealth should be sufficient to fund a lifestyle forever, or at least as long as most of us are likely to live. That is because invested wealth generates income. The Mustaches believe that you can spend about 4% of a pot of wealth each year, and on average the wealth will not dwindle to nothing until you are dead. So if you can find a way to live on $30,000 per year, you need first to acquire wealth of $750,000, and then you can retire.

You could acquire the necessary wealth by inheriting from wealthy parents. If that avenue is not available, then anyone who can get a reasonably well-paid job in the USA can budget to save a proportion of their income until the target is reached, noting that things get easier because along the way income from already acquired wealth kicks in.

Then lots of blog postings bemoan how most Americans spend far more than they need to, and often for flawed reasons like being seen to keep up with neighbours. Some of the money saving ideas are rather biased - many would say male-orientated, such as living with only two or three pairs of shoes. Some, such as a penchant for do-it-yourself, are not available to everyone. But many of the ideas are sound, and sufficient to provoke thinking about what satisfaction such expenses truly provide.

I agree with a lot of the blog. I too am astounded how much many Americans think they need to spend. Median salaries are over $60,000 and, the way I was brought up, that should be enough to save plenty for anyone living outside the big cities with high rents. I too have experienced the happy phenomenon of wealth generating income. When I retired, I vaguely calculated how much I could spend per year to tide me through to the time I could draw my pension. In practice it has been much easier than I foresaw because of the wealth-based income.

I certainly agree with the investment strategy of the blog. It is not necessary to be a fancy investor like a day trader or frequent stock picker, indeed for most of us that would be both boring and loss-making. Instead just put money in index tracked funds and leave it there. It will go up and go down, you will feel in turns rich then vulnerable, but leave it long enough and it will grow and generate dividends.

Much of the frugality advice doesn’t really apply to my international family. One trick is to game credit cards, by churning through special offers. Well my circumstances mean I can’t even get most credit cards. We have also chosen to live in NYC with its high rents, and have necessarily high travel costs because of our connections in Europe.

When you first move to a new country, or even a new region, you have to loosen the purse strings a bit, and that is when you are most likely to make mistakes. Even amidst the chaos, try at least to get the big things right, like housing and cars. It is not easy. I found that it took about six months to regain any control over my finances.

I have two pieces of advice for people living abroad though. The first is to try to do things as the locals do. In Sweden, shrimp is plentiful and cheap, so eat it. The locals do things for a reason, usually geographical, so you’ll be rewarded if you follow their lead. The second advice is about planning to leave. These assignments tend to have variable end dates, and the temptation is to live always as though you might be leaving within a few months. Within reason, avoid it, for life in a suitcase is miserable – just act as though you’ll be there for a few years, and deal with it later when things turn out differently.   

Going back to the Mustaches, many of the frugal principles are good. The blog hates cars (they are also closet environmentalists). Most people consider the cost of driving to be the cost of gasoline, but a good rule of thumb (in the US) is to multiply that by five. Families with two or three new SUV’s have plenty of scope to reduce costs. Next, they hate cable TV. I can see the point, as the cost is ridiculous, but I do love my live sports, PBS and NY1. Part of the reason they want to ditch TV is to avoid exposure to ads tempting us to waste money, which feels a strong argument. They also try to save on clothing, maintenance, gyms, smartphones and so on.

One common theme is about being wary about future liabilities. That obviously holds true for a car with a low down payment. I didn’t yet find it in the blog, but pets fall in the same category. You can pick up a cat for a few dollars, but that same cat will cost you thousands before you are done with it. Go ahead if the pleasure means that much to you, but do so with your eyes open.

I was brought up in a very frugal household, a product of war and rationing scars on my mother. Bless her, she acted as though her main goal in life was to die with a large bank account, and she duly achieved it, but she could have had a more fulfilled life if she had learned to be generous, especially to herself. As the blog argues, it is good to be both frugal and generous. I have been blessed in my life partners for slowly teaching me the wonders of generosity, and perhaps I have managed to imbue a bit of frugality in them in return.

My frugality has also been supported by my geeky love of numbers. It is much easier to understand accounts and to budget if spreadsheets and estimating and calculating come easily. I do wish school curricula paid more attention to this mundane subject, limited in mathematical depth but crucial to every human. Our daughter was offered a personal finance course right at the end of high school, but it seems that most of it dealt with parochial things like tax codes. There are many more useful, universal aspects to the subject than that. The subject is so difficult for so many people, and, sadly, their reaction is often to wish away the problem and just hope for the best – not an effective strategy.

A frugal upbringing, numeracy and cynicism must be the perfect combination for developing good frugal habits. Perhaps the original Money Mustache was blessed with the same combination. His acolytes certainly seem to be on to something, since this has developed into quite a movement by now. Well played them. And thanks again to Paul Solman for bringing it to my attention.

Thinking of frugality led me to try to come up with a list of top tips from my own experience. I’ll share them next time.

Doubling Down on the Dutch

We have just returned from a two-week trip to Europe. We visited two airports in each of England, Belgium and Portugal, stayed in one hotel in Belgium and two in the Netherlands, and drove extensively in Portugal, Belgium and the Netherlands. I understand each culture and each language poorly, but just well enough to observe, and learn, and spot lessons, usually simple lessons that the world fails to heed.

Having lived in Holland for eleven years and rarely having been back since, that part of the trip was the most interesting to me. We spent time with our daughter in a small town in the south and visited relatives and friends elsewhere, and a short trip to our former hunting ground of The Hague proved very fruitful. Our former Church had an event planned so we could meet many acquaintances and enjoy a dinner afterwards with friends, and later we even met another friend by chance on the street.

The Dutch are a special race. I was reminded of this even before the visit, when attending a music workshop in New York led by a Dutchman. He was confident, with no airs and graces – his whole demeanour said: “take me as I am”. He offered a few life lessons, as he called them, prompted by things that came up in the workshop. One such piece of advice was “argue properly”, something I had never heard but which immediately resonated. It is the Dutch way. They love a good debate, and everyone takes debates seriously and offers opinions, sometimes for hours. But eventually a conclusion is reached, based on shared data rather than hierarchy, and after that implementation starts. This is a large part of what is called the Polder model, and it is how Dutch society operates.

This trip reminded me of several ways that Holland and the Dutch can be really ugly. The land is stunningly flat and featureless. While the old towns are beautiful, much of the modern architecture lacks variety. The language is loud and guttural. The weather is wet and windy. The people seem to lack warmth and taste and care little for style, and their customer service is abysmal.

Yet despite all this I had a great time and my admiration for the land and its people was rekindled. I remembered how simple it was to do business there, because people wasted little time, said what they thought, implemented well and were careful with money. I could see the results of this everywhere I looked, with functional industry thriving. We drove along the coast through the delta, and saw wonderful examples of the water management skills of the Dutch, a competence that the whole world will benefit from as climate change wreaks its toll.

Most amazing of all was the transportation. Unlike the US, Europe seems to have a method of asphalting roads that avoids them becoming immediately pitted with potholes. The smooth ride is helped by wonderful signage and smart design of junctions, although I found many of the roundabouts a bit strange – they often had two lanes with a divider between them at certain points, which meant you really had to choose carefully.

Then there is the provision for cyclists and pedestrians. In towns, the car is very much the junior partner, with any journey interspersed with pavements that are either light grey, indicating a pedestrian route, or red for cyclists. Add in tramlines, and it can feel like a maze. It was unfamiliar, even for someone who had driven there for many years, but it was functional and safe.

One thing this system requires to be effective is obedience. The Dutch have ensured obedience by embracing technology and heavy penalties. The parking meters are a technological marvel. The motorway speed limits are even more amazing, changing every few kilometres, often in real time and automatically depending on traffic. It foreshadowed a possible future of unmanned cars, all of us tootling along at the same speed without changing lanes or looking to game the system. And we all arrived safely and without delays – well played the Dutch. But I must pray that my car hire company doesn’t send me a bill in the next few weeks for some unknown offence.

The Dutch have among the most car miles per square kilometre of anybody, because of the dense population and developed economy, so they need all this innovation to avoid gridlock. I also loved the way so many traffic lights had sensors determining when they would change for optimum flow. Actually, I fell foul of the system until I realised what was happening, because amber lights repeatedly stopped me. I was at the back of a line of cars, and the sensor wanted me to get through and then change the light, but I was going a bit too slowly and being a bit too cautious.

I love theories about how geography and history determine character. In the Dutch case, it is simple. The land is flat and prone to flooding, but productive if managed. The delta provides a source of income via trade and especially tariffs for passage. So think of a grisly lock keeper, hardened by the weather. He or she must be technically proficient, resilient and ready to endure hardship. He or she must also be tough, almost brusque and uncompromising in taking fees and counting pennies. He or she must work in partnership with other lock keepers but be ready to argue. That is the Dutch character. Take me as I am.

As soon as I drove in Belgium, I could detect differences. The people are softer but also more slapdash. The signage is poorer, the roads are less safe and some drivers lack discipline. But the welcome is warmer and the food so much better! I find it fascinating that just a few miles distance has created such stark and sustained differences.

The world has become much smaller since the Dutch character was formed, and there is a chance for future generations to defend their unique characteristics while also learning more readily from others. Transport again offers so many simple opportunities.

In New York, the longer phasing of traffic lights is smart, but sensors could make things so much smoother. A lesson in procuring and laying asphalt is long overdue. Bike lanes are smarting to emerge, but are compromised by double parking and carelessness of drivers. Speed limits are lower than in Europe but hardly followed or enforced, even though technology would make that simple.

A transport experience is highly visible. But there is no doubt that the Dutch have used their character equally effectively in less visible areas of public policy, such as health and education. Lessons would be abundant, were we ready to accept them. 

What holds this learning back? Partly it is resistance to change, often masked as protecting freedom. Perceived freedom means a lot to Americans, descended as they are in most cases from pioneers. Discipline and cooperation do not often gel well with such priorities.

It is not surprising that Dutch is a language full of proverbs, reflecting outcomes from years of Polder model learning, passed through the generations. “Argue well” is such a saying, one that I had not heard before but which I love. The US political system could benefit from learning to argue well. The Dutch used to run New York – it was originally settled as New Amsterdam. Perhaps it would be a better place if they were to return, though the food would certainly take a turn for the worse. 

I am Kavanaugh

The US is currently consumed in an ugly drama, being played out in public. I was not here at the time, but it feels reminiscent of the OJ Simpson trial. This drama shares elements: a human story playing out along a cultural fault line; live TV courtroom style drama; most people having a preordained opinion and taking a selective view of the evidence; and long-term consequences for the nation.

I joined most people last Thursday, finding CNN on my TV for the first time to witness the Kavanaugh hearings. They were certainly dramatic. Despite the ludicrous format imposed by the Republican majority, a clear picture of Christine Blasey Ford shone through. As one commentator put it, it was a wholly compelling performance, precisely because it was not a performance. Many people tuned in hoping for her to be exposed as a political puppet, or an unreliable witness, or with a fatally flawed recollection. None of these things happened, and the best that those that wished to discredit her could come up with was a reluctant admission that the events she recalled really did happen, but perhaps Kavanaugh had not been one of the perpetrators.

Then Kavanaugh took the stand, and I was shocked by his attitude. He was just as authentic; it was just that the character exposed was far less likeable. He was angry and bitter about the process, claiming the whole circus had been a political ambush. He was close to a broken man, bemoaning the lasting damage to his reputation. I believed him as well, at least in these aspects. When he deigned to comment about the actual allegations, I was less convinced.

While watching, I was struck by similarities between my own background and that of Kavanaugh. He is just a few years younger than me. We both had ambitious parents with money and were packed off to private schools and top colleges, burdened by high parental expectations for our futures. From what I gathered, both of us had a desire to belong socially, and that meant fitting in with groups of boys. That led us to comfortable forms of rebellion such as drinking and boorishness and maybe a dose of bullying to show our credentials. Maybe we were both frightened by girls and female intimacy, fearful of humiliation, which led us to struggle to create normal friendships with girls, and then to potentially objectify them when with other boys.

My own experience is painful to recall. My father was old and died when I was 15, and my mum found intimacy difficult and was prudish. At the time, TV and movies and books did not help much either, generally portraying idealised confident and aggressive boys. I remember recoiling when a girl tried to kiss me when I was 17, and then again when another girl suggested sex when I was 21. I don’t remember seeking advice for anything intimate, and I guess it was no surprise that in the end an older woman was the one to enable me to start to face the inhibitions when I was 25.

From Kavanaugh’s attitude, evidence and interviews, his story might well be very similar. One difference is that he was better connected and also a athlete and presumably more desirable, so he had more opportunity for missteps than I did. Most of the time I could just hide in my misery. At the country club and fraternity, he had a higher likelihood of encounters like that described by Ms Blasey Ford. I could easily have made similar mistakes – what saved me was not good character but acne and a lack of opportunity.

My guess is that these stories are far from unusual, even today, and that it would be helpful if people knew that. I think I read in the 1980’s that about 40% of boys left college as a virgin. The percentage may have reduced now, but not all that far, and not in every culture – Japanese boys are known as inhibited and late developers, for example. Yet popular culture portrays male virginity above 20 as uncommon and freakish. I watched the movie “the 40-year-old virgin” and cringed. This culture does nothing at all to help those frightened boys.

One way that boys will be boys remains that they exaggerate and struggle to express their true feelings or to seek advice. It may not be 40%, but a significant minority will be suffering like I did and perhaps Kavanaugh did too. I would not equate their trauma to that of victims like Ms Blasey Ford, but it is still trauma. And of course if society could address the trauma of confused boys, that would create fewer female victims as a direct consequence. Luckily, this is one of the many ways that the current generation is so much smarter than my own, but it is not the case for everyone, nor everywhere – think of India or China. 

Going back to the current politics, feeling commonality with Kavanaugh helps to put me in his shoes, but it doesn’t make me support him for the Supreme Court. There are many reasons for this.

First, it feels all too likely that he really did molest Ms Ford, even if some of the other allegations might be exaggerated and driven by less pure motives. I might have done this too, given different circumstances, and, in the unlikely event that I would have risen to become a Supreme Court nominee, I think I would have dug myself into a hole too. First I might have dissembled, then I might have doubled down and become angry: that is how entitled people who are used to getting their own way behave. My guess is that he now regrets not being fully transparent from the start, but that hole is too deep for that now, at least if he wants to fulfil his lifetime ambition.

Now, I’d be open to an argument that says he should not be excluded by an indiscretion as a 17-year-old. Indeed, I’m very open to that; my own experience means I would not judge him too harshly, despite the trauma of Ms Blasey Ford. The problem is the hole he has now dug. It is sad, but he has probably dissembled, and that would disqualify him. The legal burden of proof here is far lower than a criminal case; even if we think the odds on his honesty are as low as 75%, he is disqualified.

That would be sad, harsh and even potentially unjust were it not for two other arguments.

First, he destroyed his own credibility on the witness stand. It is fair, even true, for Lindsey Graham to berate the Democrats for their cynical ambush of the process. But Kavanaugh cannot do that himself, still less attribute motivations of revenge for 2016 and the persecution of the Clintons. A Supreme Court judge cannot be so nakedly partisan, and, even under duress, he should know that. For as long as he sat on the court, decade after decade, he could never shake off a label of being partisan and hence biased. We struggle to defend Clarence Thomas as a possible abuser. That would be hard with Brett Kavanaugh also, but possible. Observing him as a naked partisan undermines the Supreme Court far more completely.

My other argument is about hypocrisy and fair standards. Entitled people tend to shrug off their immature behaviour. The last two Republican presidents evaded the draft, and both have plenty of other youthful excess to explain away, one of them not just in youth. I can almost forgive that, if only these same entitled people demanded the same tolerance for others. But they are the ones who cheer on policies that lead to mass incarceration of black youth and weak attempts at rehabilitation; in context, those kids are at least as forgivable.

And what about abortion? That is such a tough issue, with the judgement about when a foetus becomes human against potentially destroying the prospects of a young mother. But I don’t see a massive attempt from these same people to make the boys as responsible as the girls, nor to make unwanted pregnancies less likely. Look at Kavanaugh and imagine things went a bit further and Ms Blasey Ford became pregnant – it is all too possible. Dragging up a peccadillo from 35 years ago may damage his reputation, but the other party would probably have had to abandon any chance to reach the Supreme Court or any other senior position, were abortion not available. Sadly, it is typical of men of privilege to expect a different treatment for themselves than they demand for others.

Sorry, Brett, I can empathise with you, I can fully understand what you did, but you are not worthy of the Supreme Court, and it would be an enduring tragedy if we have to remember this every time we see your face with eight others in black robes for the next thirty years. It is time to quietly retire and devote the rest of your life to defending victims. How about setting up a foundation to help mixed up boys?

The six percent curse

I’ve been looking for root causes of the economic challenges facing the world. My answer is the assumed real return on capital, a risk adjusted 6%.

One of the main changes in global economics over the last forty years or so is how most capital now acts as one large pool. Beforehand, capital was a bit sticky, and it also flowed within many small pools. Moving capital between the pools was costly and often prohibited by capital controls. Only the very well connected could achieve it, people such as dictators, who became very rich indeed.

But now all that has changed. Capital controls have largely vanished, except in places like Venezuela, and to an extent in China. Technology has spawned a plethora of financial products to speed things along. And most investors have mingled together into a single mass, facilitated by banks, all looking to fish in the same pond. And more and more, investors include us: our pension, whether a company scheme or a 401K, forms part of the capital being invested.

To a large extent, the freeing up of global capital has been a good thing. Great projects can always find funding, including in the developing world. Innovative companies can improve everyone’s lives. Those dictators have a tougher time these days. Corporate bosses cannot get away with being lazy. Local bank managers can’t give loans to their cousins or golf buddies and ignore more deserving causes. Competition and scrutiny are everywhere, including on governments.

But a single pool of liquid, free to flow, must find a level, and that level has been 6% real for twenty years now, a level that has become a self-fulfilling prophecy. It is the big pension funds that set the level, for they need an assumption to balance their books. Now everything in the pool has to assume the same level, and most capital in the world is in the pool.

6% is a heroic rate by historic standards. Although the global population is growing at close to that rate, many richer nations now have declining and ageing populations that hold back growth. But 6% was set at a time of optimism. More cynically, banks and the US government were trying to promote 401K’s at the time (to benefit corporations and banks), and 6% made those seem more attractive.

The consequences of 6% have been huge. Most obviously, the rate builds in ever growing inequality. As Piketty claimed, usually r>g, and g, the natural real growth rate of production, now seems to be 2-3%. 6%, r, is the rate that capital, or existing wealth, grows. Summers’ theory of secular stagnation suggests that long term growth potential could be even less. So the rich get relatively richer compared with those without wealth. Without large compensating wealth, inheritance or property taxes, this cycle is set to continue, at least as long as r stays at 6%.

The next consequence is delusion, recklessness, bubbles and periodic crises. Anyone needing funds, so basically all of us, but especially companies, banks and governments, have to put forward a plan to achieve 6%. Meanwhile, the pension fund investors need to find plans that generate 6% to stay afloat. So everyone has a need to keep the plates spinning. So claims inflate, so does debt, and risks are overlooked as everyone crowds in. Then the bubble bursts; in the case of 2007-09 the asset class that collapsed was US housing debt. But such is the global dependence on the fiction of eternal 6% that governments chose to bail out banks, allow homeowners and jobholders to suffer, and even to make suffering worse by reducing their spending that was social rather than financial. After a while, the plates can spin again. We blame bankers, and the politicians in their pockets, but actually they had little choice, so long as the core assumption stayed unchanged.

The next consequence is starvation of investment. With a high discount rate, benefits in projects realised after more than 15 or 20 years count for little in financial evaluations. These tend to be the projects involving high up front capital or new technologies, and include things like roads and hospitals. It is no coincidence that infrastructure in developed nations has been hard to fund over the last fifty years. Projects such as social housing fit this category as well. The only people who can make such investments are in golden sectors like IT, where valuations can be sky-high, and in companies or places not reliant on debt financing. The most obvious example is China, and the Belt and Road initiative is the result.

While there are many factors behind the rise of populists, one root cause might be 6%. Mainstream social democratic parties have been sucked into the assumption, and been forced into policies to feed it and the class that benefits. Inequality rises, while poor citizens are lured into schemes built on inescapable debt. The rich spend less than the rest of us on average, so consumption overall is reduced over the mid term, a further argument towards secular stagnation. In this situation, someone promising escape while blaming foreigners has much appeal.

One other consequence of the flattening of global capital is the growing power of economic bullying. Trump does not need his mighty military as much as previous bullies, he can apply economic sanctions very easily, and with greater potency than before. In the long term the world will respond by stripping the US of its unique position as owner of the only reserve currency. At that point the US debt will leave the US itself at the mercy of China and other possible bullies.

If I am right, or even (more likely) somewhat right, and 6% is a root cause of so much damage, what can be done to reverse it? At first, this question seems simple, since it is just an assumption. Why not just change it to 4%?

This could be done, but it would instantly create another financial crisis. All invested wealth would suddenly be worth less. In particular, any pension fund or other fund that pays out in the future would immediately have an unmanageable deficit. That ropes in the largest investments, nearly all national governments, and cities, starting with those like Chicago and Detroit, where the most financially stressed regular people live.

Still, recognising the problem remains the first step to solving it, even if admitting it creates a crisis. That is the nature of such problems. The key is to have a solution to the crisis ready at the same time.

Short of solving the problem, some steps can help to reduce its effect. It is probably not of benefit to go back to a world of capital controls, but the water can be made stickier. Start with a Tobin tax, designed for exactly the purpose of slowing down the most speculative flows. Then reverse incentives for debt. As part of the plate spinning, many advanced economies have favoured debt, through measures like mortgage tax relief and other tax advantages.

Then take a deep breath and change the assumption, led by governments and mandating banks. But have the safety net ready, not for corporations but citizens caught up in the mess. That implies printing money for debt relief and pension shortfalls. It would be like the last bailout, but this time targeted to change the assumption rather than prop it up. Its effect would be like a short burst of high inflation – writing down almost all wealth. And, having reduced inequality at a stroke, the new assumption would mean it would only build up again more slowly.

Lastly, take the opportunities that the reduced assumption provides. States can categorise investments with social or longer-term payback, without falling into the traps of nationalisation or picking winners. It is simply using the extra leeway to steer capital to the benefit of society rather than bubbles.

Most likely, only another crisis will enable this shift to happen. Perhaps that is fair enough. But this time, if I am a little bit right, economists can be preparing for the crisis in advance, and use it for lasting benefit.  

Solving Economics

One of my few regrets is that I did not study economics at college. I was a bit of a maths prodigy so slid into that discipline, but I loved economics at school, and once I got to college I could still succeed at the maths but found little passion for it. So I flirted with changing, but ultimately stuck with the safe option. Who knows how things would have turned out, but a part of me still thinks I made a mistake.

I loved economics because it was live, empirical, unsolved, complex, but showed signs of being solvable, with a mixture of theory and experimentation. Since my school course in the 1970’s, text books have had to be re-written at least twice, and the discipline has learned a lot but arguably remains as far from lasting solutions as it ever was.

My guess is that this will change over the next twenty years. My belief is that there have been two big inhibitors to progress in the discipline.

The first has been in the nature of the subject: because so many variables are interacting all the time, and because most of these cannot be controlled (and others cannot be ethically controlled because they have too much influence on human well-being), the mass of available data has always had too much noise to be able to reach definitive conclusions. But this limitation might be vanishing, thanks to big data and machine learning. Economics is precisely the sort of field where this can help, and I believe the science will march forward as a result.

But economists will have to overcome the second limitation, that of lazy bias. Too many theories are set up to serve vested interests, usually the corporations and sponsors wishing to maintain their wealth. This had held up progress in many disciplines, for example healthcare and environmental knowledge, but in economics it has been everywhere, and politicisation of the subject has held back progress.

As an optimist, I am hopeful that once big data starts to make a difference, the political side will find it harder to resist more robust ideas. If The Economist is any guide (and I think it probably is) there are already promising signs. Over the last couple of years, the magazine has been more open to casting off tired shibboleths. Until recently, they thought that every problem in education could be solved by firing teachers, that trade was always good and that trade unions were always bad. Nowadays things are more nuanced, and the magazine also has a good new habit of posing open questions.

I would love to know more about the subject, to be able to understand more of the debates in the Economist and elsewhere and also to challenge and hone my own opinions. The complexity has increased with globalisation but so has the potential to create really robust models that can drive policy and progress.

Within the most recent edition, many articles were thought provoking and not dogmatic. The lead article looked at finance ten years after Lehman; the Britain section mused intelligently about low wage growth; there was a fascinating debate out why Turkey and Argentina seemed to be getting the same results from diametrically opposite policy stances, one of which the Economist would typically have lauded; and Larry Summers’ thoughts about secular stagnation were reopened. My hope and my guess is that in twenty years time all of these challenges will appear much more simple and open to attainable remedies.

One potentially useful tool in all of this is something that programmers, doctors and project managers use all the time; root cause analysis. A good example may be in understanding the causes of the Great Recession. It is too easy to blame the greed of bankers. I tend to agree that most bankers are greedy frauds; this week I enjoyed the movie The Big Short, which confirmed my bias but also set me thinking about possible deeper causes. Perhaps I will read Crashed, but yesterday in Barnes and Noble I flipped through its 600 pages and I am not sure my love for Economics goes that deep.

My pet root cause for much that goes on in the world of commerce and finance is 6% real. That has become the target rate of return for capital.

Fifty years ago, capital was managed in small pools. There were barriers to capital crossing borders. Individual firms could pursue their own strategies and goals. Governments could also mix policy objectives. Investors acted somewhat independently. Now all that has changed, and most of the world’s capital acts as one large pool. And like water it flowing downhill, capital seeks out its best risk-adjusted return. Any investment offering less than the average is starved.

This has happened because most barriers between states have been dismantled. Further, investors have merged towards a single block and have become tied up with governments. The largest investments are now pension funds, linked to regular citizens and of great interest to governments. Remaining investors have become like lemmings too, often using index-tracking funds, and, if not, getting data so frequently as to expose any portfolio offering below average returns.

In this environment, the financial world has become flat, and its level is at 6% real. Pension funds must assume a rate of return to balance actuarial inflows (today) with outflows (in many years time). At a time of boom, they chose 6%, and to change that now would require unaffordable write-downs. Governments would be on the hook for public sector funds and under pressure for private ones too. In a way, it is not that banks have become too big to fail; it is that almost the whole system has become too big to change its base assumption.

There are a few exceptions. Sovereign wealth funds could choose a lower target, though citizens might ask why. Privately held companies can also opt out, so long as they don't need to finance much debt. And governments can opt out too, choosing to impose capital controls and print money. Venezuela shows where that policy ends up. Argentina does too, as well as what happens when a country opts back in. Increasingly, there is no escape. One victim has been social democratic political parties, finding that in power, fiscal discipline constrains their actions, and then damages their brand and reduces trust among their possible voters.

Compared to historical averages, 6% real is a huge return to achieve sustainably. In one way, it has been good that the target is set so high, because it fosters innovation and hence human progress. Silicon Valley might have been less exciting if the 6% target had been lower. But the downside has been disastrous.

Companies have had to become reckless to continually produce plans to investors that flag 6% real returns. They diversify into risky financial products and pursue ambitious acquisitions. They rely on dodgy consultants and internal gurus and pay them far too much. They offshore and outsource. They sacrifice any thought for secondary goals such as fairness to customers, environment, legacy and workers – it is not callousness that has destroyed real wage growth, it is employer necessity. They buy back shares rather than investing, and especially avoid long-term, less certain investments. They pump up debt. Each quarter they announce earnings and a new plan to keep the plates in the air a little longer. If the plan is not deemed credible, they fire the CEO and find a better snake charmer. They also might collude, and certainly they lobby - even blackmail - governments fiercely to reduce regulation and corporate tax rates.

As a result, we have an economy permanently on steroids but filled with risk. Banks are just companies with even stronger steroids. Governments cannot escape either.

2007-8 is one obvious consequence. So is relentless growing inequality. There are other consequences as well, that I’ll look at next time I blog. Then I’ll also consider if there may be any paths out of the mess. 

Too little, too late

Consider this job description. The headline is a community counsellor. The responsibility is to be available to anyone within a defined boundary to offer comfort, advice, hope and suggestions. You are offered legitimacy in the role by the support of an international hierarchy of such counsellors, and by undertaking fixed rituals, including regular speeches. Those you are counselling come to believe that this backdrop gives you power to support and heal, to forgive and even to offer life after death. Your legitimacy is further boosted by some darker powers over anyone who does not follow some rules or your guidance. Pay and lodging is provided, and you will be well looked after even if you are unlikely to grow rich.

This is quite an interesting job description, is it not? Imagine it appearing in a local paper. Who might be interested? Who might turn out to be good at the role?

About who might be interested, on the plus side, they would likely be kind and have a benevolent wish to do good for others. The global hierarchy and the consequent possibilities for career advancement, despite that rather poor pay, might attract some of ambition, which might be good or bad. More risky is all that stuff about power – this might attract those with a need for control and who feared they might lack the skills to acquire it without the uniform or rituals.

As for who might be good, well the job would require massive patience, empathy, optimism and resilience. They must be good listeners. Some sort of psychology training would help. The empathy would be aided by a wide experience of life, suggesting people old enough to have such experience but not so old as to be out of touch. Ambition and control would need to be tempered – these people must lead through service. Like many caring and supporting jobs, on balance women might typically be better suited than men.

If might be tough, but if society decided to create such a role, maybe it could be filled by qualified candidates and do some good. But, sadly, there is more, none of it positive.

First, only men are accepted. Next, the training is long and theoretical and arduous and applicants must consider that the role is for life. The hierarchy is absolute, the doctrine restrictive, but there is almost no scrutiny from outside the hierarchy. Finally, no sex is permitted – no flirting, no masturbation, no sex at all.

Who will be interested now? Rather fewer people. And while they will still have a benevolent streak, they are far more likely to be motivated, at least in part, by the stuff about power, probably ladled with a strong fear of intimacy and the opposite sex. If recruited at thirty or below, they seem very likely to be under strong influence from a mother figure and to have some slow-developing and confused ideas abut sex and sexuality. As for whether this profile would turn out at good at the job, well, there will be some happy successes, but few would be able to overcome the handicap of lacking worldly experience, and for a minority the combination of power, absence of scrutiny and mixed up thoughts about sex could be highly dangerous.

Of course I have been trying to describe the job of Catholic priest, admittedly using corporate type language that those of a spiritual nature might dispute. But looking at it in this stripped-down, corporate way seems to me to go a long way to explain the mess the Church has got itself into, even its inevitability.

What surprises me about the most recent revelations is that anyone should be surprised. The lid was taken off this scandal years ago, and exposed further by wonderful movies such as Spotlight and Philomena. The Church responded as defensively as you would expect from an institution of such arrogance, wealth, vulnerability and freedom from external scrutiny. To its credit, it has put procedures in place to make a new generation of priests far less likely to fail.

But it was inevitable that more abuses from the past would come to light. Previous revelations required brave whistle-blowers to defeat entrenched positions so were sure to be only a tiny part of the story. Even now, there must be a lot more to follow. Why should Pennsylvania be unique? And think about a place like the Philippines, where all the temptations will have magnified and the scrutiny even less.

Only now have priests in the USA been allowed to publicly express their anger and shame, and it is to their credit that my local ones have been clear, and even cautiously proposed some controversial reforms. While I was impressed and moved by this statements, my overwhelming feeling was one of “too little, too late”. Where was the focus on victims ten years ago? Where was the urging for reform? Where was the condemnation of cover-up? It was all missing, following the lead of a callous and divided Vatican. Sadly, asking us to believe in these people to reform now is not really credible.

It is sad because the Catholic Church remains a force for good, perhaps the most effective global NGO and sometimes a stalwart for human values. Even on the values, the track record is blemished, both past and present; the Church can seem like a single-issue lobby group at times, following its prime source of money rather than its conscience. How can a Trump administration be tolerated by anyone grounded in the gospels?

So an institution providing hope and practical charity is perhaps holed below the waterline and beyond self-repair. The previous time a pope visited Ireland, 2.5 million souls turned out to greet him; last weekend the tally was 130,000. The current pope is clearly hemmed in by entrenched interests. Beyond prayer and personal advocacy, can anything be done?

I believe it is time for states to stand up to the unacceptable face of religion. Most religions have a dark side. Jews are taught to believe that they are God’s chosen people. Evangelical Christians are divisive and tribal. Radical Islam harms its own adherents, especially women, while preaching hate. Hindus perpetuate the caste system. Buddhists cheer on persecution of Rohingya. Nearly all religions hold back women’s rights, and gay rights.

The solution is obvious; end all legal carve-outs for religions. Already universal human rights declarations mandate religious tolerance. But most states actively or passively tolerate practices that would be illegal were they not based on religion. Most of the root causes of the Catholic mess would be eliminated, as would many dark effects of other religions. Yet charity, promoting respectful values, and non-abusive private rituals of hope and comfort would be supported and can continue.

The effect would be transformative. Obviously, the abuses would largely stop. But I suspect the main beneficiaries would be religions themselves. The Catholics cannot reform alone, but if forced to reform they could provide an attractive haven for recruits, both adherents and celebrants (of all genders, living healthy lives) . The same would be true of many other religions. And as individuals we would have less reason to hate others, while ignoring our own hypocrisies.

Will this happen? Not in my lifetime. But a quiet movement might create some valuable osmosis. If they are smart, reform-minded Catholics should be in the forefront. And because Christianity is the religion in most trouble and is the established religion of the rich world, perhaps that world might be able to lead.

In the meantime I will continue to attend mass and support my local churches and their leaders. I will continue to try to hold my own religion to the same human standards that I try to judge other religions by. And no doubt I will be saddened, but not remotely surprised, by the next torrent of human failing in the name of religion that hits the news.   

Has experience lost its value?

I have always thought experience was rather overvalued. I spent some time working in a German business environment, where it seemed that qualification and experience were everything, performance track record almost nothing. I saw the results – an intensely hierarchical workplace filled with snobbery, dead wood and underpaid youngsters.

It was not so different in the Netherlands, especially in technical fields.  I used to sit on a contracts board for a business that hired contract engineers. Often the specification would require a ridiculous period of experience in the field, such as twenty-five years. I used to wonder, aloud, what possible extra value that twenty-fifth year might have brought to make one candidate qualified and another not. I learned that it was often a ruse, akin to a closed shop, to make sure the same individuals were hired again and again. Some people didn’t like seeing me on that contracts board!

But then I could support an argument that, say, ten years of experience in a field might be a reasonable requirement. After all, a professional will not experience all the possible situations very often, and certainly not in a classroom. It takes someone of experience to recognize a rare situation and to react in an appropriate and measured way.

But even ten years of experience in a narrow field can raise red flags. How have methods changed since the person was trained, and has he or she kept up to date? Have they become stale or jaundiced, or make lazy assumptions? How well will they respond to authority, and to unusual team environments?

As so often, we can find some good examples from the world of sport. Among players, experience is noticeable in someone who is calm, who intuitively reacts to a situation before it matures, and who avoids rash mistakes. Sadly for professional athletes, that advantage is all too quickly outweighed by physical limitations. Notice how the most influential player in the recent soccer world cup was Mbappe, a raw nineteen-year-old with electrifying pace.

Soccer managers have a longer life cycle, but even here experience is not everything. Look at poor old Arsene Wenger, twenty-two years in the same job and plainly overmatched for the last third of his reign. Ferguson did not suffer the same fate – perhaps he was more prepared to update his skills and methods, and perhaps, for all his cussedness, he was a better delegator.

Jose Mourinho is another example. Arguably his methods have become less outdated than Wenger’s, but there is a problem with his attitude. He was always arrogant, but experience has made him intolerably so, at a time when relations between coach and player have changed. And he has become stale. Manchester United should cut their losses as soon as possible.

Then again, it is rare that a first time manager is immediately successful. They need experience. Without it they make mistakes, fail to see trends and struggle to build up respect.

So, experience has value, up to a point, and a degree of experience is a requirement for success. What I am wondering is whether the value of experience compared with other attributes is less than it was before, and whether the required degree of experience has reduced.

I came to this thought by considering choir conductors. I have had the benefit of working with several in recent years, and have been involved in some conductor searches as well. I believe I have noticed some trends.

Firstly, the overall standard has massively improved. When I think of the conductors I worked with ten years ago, their flaws are obvious. Nowadays, nearly everyone is technically strong. There is a range, but the low, median and high points of the range have all gone up.

But the other trend might be more surprising. Most of the best conductors I work with nowadays seem also to be the least experienced, so long as they have had a full training and at least a year or so working on the human side. This contrasts with just five years ago. I remember a particular conductor search. There were some tired candidates who had not kept up with modern methods. But there were also many held back by lack of experience, rather raw, just as rookie soccer players can be – locked into one or two dominant methods, afraid to improvise, prone to errors and immature with leading elders. This seems to have changed with the next cohort, many of whom exhibit none of those weaknesses.

So why might that be? I can think of several reasons, many of which feel compelling to me. College teachers have improved. This may be because they can use smarter tools, explore what works and learn from peers around the world, all supported by video and audio technology. Their pupils can learn more quickly, mainly because their opportunity to practice and get feedback has exploded because of the same media. Perhaps both groups have also improved their relationship skills – there may be less hierarchy and fewer dogmatic approaches, as well as greater curiosity and respect and ability to assimilate feedback. All of this will apply after college as well. The developing conductor can travel to observe more, can use youtube to observe themselves and others, and practice in more diverse situations. It is possible that we elders have improved as well, more ready to offer respect to a new generation.

Meanwhile, some conductors with experience can be shown up in comparison. Choristers needs have progressed, in repertoire and in rehearsal methods, and we have shorter attention spans and value technology aids. In this new environment, tried and trusted methods can suddenly appear rigid and less effective.

So the faster pace of change, improved teaching, and technology-assisted practical learning may have partially inverted the experience curve, or at least moved its tipping point. The emerging conductors can now develop more quickly, so that they can aim to be as effective in a year or two as their predecessors could be only after ten or more years of experience. And the value of those ten years may also be diminishing, as good practices change more quickly. I observe this every week; now I can start to understand what lies behind it.

But of course these trends are not restricted to the field of choir conducting, but affect almost any professional field. Whether it is surgeons requiring keyhole expertise, or engineers using internet-enabled instruments, or accountants challenged by globalization, most fields are changing quickly, while new cohorts have the opportunity to develop more rapidly. Such universal skills as research and line management have changed beyond recognition, and the kids are showing the way forward.

The consequences are exciting but unsettling too. Overall, progress will be quicker. But we can see how my generation is protecting its positions and how that slows progress down and creates conflict. Many countries still have labour laws and practices that leave people in charge who are no longer the optimal choices. Whole industries are losing out as a result – whose management team do you trust to win the war over self-driving cars, Ford’s or Google’s? Go even wider, and you can extend this to countries – Italy or China?

And when the next recession comes, as it will, and automation drives more holes into the model of regular employment, there will be social tensions. Still, overall we should celebrate; the inversion of the experience model only accelerates progress further. And I’ll continue my policy of looking out for younger conductors to work with.