Move over central bankers, your models are part of the problem

The new masters of the universe are struggling to understand what makes a modern economy tick and their actions could prove harmful.

Chris Giles in The Financial Times

Central bankers usurped the titans of Wall Street as the masters of the universe almost a decade ago. They rescued the global economy from the financial crisis, flooding the world with cheap money. They used their powers effectively to get banks lending again. Their actions raised asset prices, keeping business and consumer confidence up. Financial markets and populations hang on their words. But never have they been so vulnerable. 

As they gather in Washington for the annual meetings of the International Monetary Fund, there is a crisis of confidence in central banking. Their economic models are failing and there are doubts whether they understand the effects of interest rates and other monetary policies on the economy. 

In short, the new masters of the universe might not understand what makes a modern economy tick and their well-intentioned actions could prove harmful. 

While there have long been critics of the power of central bankers on the left and the right, such profound doubts have never been so present within their narrow world. In the words of billionaire investor Warren Buffett, they risk being the next ones to be found swimming naked when the tide goes out. 

The ability of central banks to resolve these questions does not just affect growth rates, but is fundamental to the health of the democracies of advanced economies, many of which have been assailed by populist uprisings. 

“If we can’t get inflation back up [trouble lies ahead]. We can’t have political stability without wage growth,” says Adam Posen, head of the Peterson Institute and formerly a central banker at the Bank of England. 

The root of the current insecurity around monetary policy is that in advanced economies — from Japan to the US — inflation is not behaving in the way economic models predicted. 

Deflation failed to materialise in the depths of the great recession of 2008-09 and now that the global economy is enjoying its broadest and strongest upswing since 2010, inflationary pressures are largely absent. Even as the unemployment rate across advanced economies has fallen from almost 9 per cent in 2009 to less than 6 per cent today, IMF figures this week show wage growth has been stuck hovering around annual increases of 2 per cent. The normal relationships in the labour market have broken down. 

Amid this forecasting nightmare, some frank talk is breaking out. Janet Yellen, chair of the US Federal Reserve and the world’s most important central banker, has been the most direct. “Our framework for understanding inflation dynamics could be mis-specified in some fundamental way,” she said last month. Her sentiments are spreading. 

For Mark Carney, governor of the BoE, global considerations “have made it more difficult for central banks to set policy in order to achieve their objectives”. Mario Draghi, president of the European Central Bank, is keeping the faith for now, but observes, “the ongoing economic expansion . . . has yet to translate sufficiently into stronger inflation dynamics”. 

Claudio Borio, chief economist of the Bank for International Settlements, which provides banking services to the world’s central banks, says: “If one is completely honest, it is hard to avoid the question: how much do we really know about the inflation process?” 

The details of macroeconomic models are fiendishly complicated, but at their heart is a relationship — called the Phillips curve — between the economic cycle and inflation. The cycle can be measured by unemployment, the rate of growth or other variables, and the model predicts that if the economy is running hot — if unemployment falls below a long-run sustainable level or if growth is persistently faster than its speed limit — inflation will rise. 

The models are augmented by a concept of inflation expectations, which keep inflation closer to a central bank’s target — usually 2 per cent — if the public trusts that central bankers will do whatever it takes to return inflation to that level after any temporary deviation. The holy grail for central bankers is to claim credibly that they have “anchored inflation expectations” at the target level. 

In the model, the most important factors that explain price movements are therefore the degree to which the economy has room to grow without inflation, termed “slack” or “the output gap”, and the public’s inflation expectations. 

The role of central banks in the model is to set the short-term interest rate. If a central bank sets its official interest rates low, people and companies will be encouraged to borrow more to spend and invest and discouraged from saving, boosting the economy in the short term. Higher interest rates cool demand. 

The first fundamental problem with the model is, as Mr Borio says, “the link between measures of domestic slack and inflation has proved rather weak and elusive for at least a couple of decades”. 

While Japan’s unemployment rate is now back down to the levels of the 1970s and 1980s boom, leaving little slack, inflation is barely above zero. In Britain, unemployment has almost halved since 2010, but wage growth has stuck resolutely at 2 per cent a year. 

But many economists and central bankers are wedded to the underlying theory, which is about 30 years old, and seek to tweak it to explain recent events rather than ditch it in favour of less orthodox ideas. Such nips and tucks are occurring all over the world, although the explanations differ. 

Ms Yellen has highlighted measurement issues in inflation and “idiosyncratic shifts in the prices of some items, such as the large decline in telecommunication service prices seen earlier in the year”. Similarly, the ECB is fond of a new definition — “super core inflation”, which strips out more items from the index and shows the bank performing better against its target than the headline measure. But few central bankers are happy with meeting targets only once they have moved the goalposts. 

A second explanation is that the level of unemployment that is consistent with stable inflation has fallen. In 2013, the BoE thought the UK economy could not withstand unemployment falling below 7 per cent before wages and inflation would pick up. It now thinks that rate is 4.5 per cent. On this reasoning, inflation has been low because there was more slack in the economy than they had thought. 

The problem with such explanations, as Daniel Tarullo, a Fed governor for eight years until April, notes, is that if central bankers keep changing their notion of sustainable unemployment levels “sound estimation and judgment are sometimes hard to differentiate from guesswork in attempting to see through transitory developments”. 

A third explanation is that central bankers have been so successful in anchoring inflation expectations, companies do not seek to raise prices any faster and workers do not ask for wage rises even when jobs are plentiful. 

Mr Draghi recently urged union pay bargainers to stop looking backward at inflation rates of the past when they negotiate wages, in a move that used to be unthinkable for a central banker. The problem with this explanation is both the self-serving reasoning and the fact that inflation expectations cannot be measured. 

“Over my time at the Fed, I came to worry that inflation expectations are bearing an awful lot of weight in monetary policy these days, considering the range and depth of unanswered questions about them,” says Mr Tarullo. 

The Bank of Japan, meanwhile, frets that companies are cutting employees’ hours and raising productivity rather than paying more, which is hampering its ability to push up inflation despite extremely low unemployment. 

If it was not bad enough that the link between the economic cycle and inflation has broken down, the second fundamental problem in central banking is that estimates of the neutral rate of interest — seen as the long-term rate of interest that balances people’s desire to save and invest with their desire to borrow and spend — appear to have fallen persistently across the world. 

The Fed’s central estimates of the real neutral interest rate has declined by nearly two-thirds in five years, from 2 per cent to 0.75 per cent. But the figures are again little more than guesswork. As Ms Yellen said, “[the neutral rate’s] value at any point in time cannot be estimated or projected with much precision”. 

Whether it is because ageing populations want to save more or because of a global “savings glut”, as former Fed chair Ben Bernanke said, low rates no longer have the same impact, limiting the effectiveness of the medicine central banks want to administer. 

Regardless of the terminology, the two problems combined suggest central bankers cannot easily determine whether their economies need stimulus or cooling and do not know whether their monetary tools are helping them do their job. And there is increasing concern, even expressed by Ms Yellen, that the underlying theoretical model might simply be rotten to the core and attempts to tweak it are futile. 

“Essentially you are setting policy on things you don’t know and can’t measure and then reasoning after the fact,” says Mr Tarullo. His core argument is that central banks maintain an absolute faith in the model with absolutely no evidence to support it. 

At a conference last month to celebrate the BoE’s 20 years of independence, Christina Romer, professor of economics at the University of California, Berkeley, urged central bankers to have a more open mind. 

New research is needed to question whether current thinking is deficient, she said, “and if such research suggests our ideas explaining how the economy works are wrong or need to change, then central bankers need to embrace those ideas”. 

The most aggressive critic of the consensus is Mr Borio of the BIS. He accuses central bankers of misunderstanding the drivers of inflation and their effects on the economy. His argument is that global forces of trade integration and technology are more convincing than concepts of domestic slack in explaining the absence of pricing power among companies and employees. 

He asks: “Is it reasonable to believe that the inflation process should have remained immune to the entry into the global economy of the former Soviet bloc and China and to the opening up of other emerging market economies?” 

His concern is that by keeping interest rates low, central bankers have no effect on inflation or the economy other than to increase the level of debt. The result is that it will be harder “to raise interest rates without causing economic damage, owing to the large debts and distortions in the real economy that the financial cycle creates”. 

It is not a popular view, but it is no longer dismissed out of hand. Ms Yellen justified her stance on continuing to raise interest rates gradually in the face of persistently low inflation by appealing to concerns about debt. 

“Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability,” she said. 

With central bankers credited for keeping the economic show on the road over the past decade, it will come as a shock to many to hear how little confidence they have in their models, their policies and their tools. 

One question posed by Richard Barwell, a senior economist at BNP Paribas, is whether they should let on about how little they know. “It’s rather like Daddy is driving the car down a hill, turning round to the family and saying, ‘I’m not sure the brakes work, but trust me anyway’,” he says. 

For now, the public still trust the women and men who work in the marbled halls of central banks around the world. But that confidence is fragile. Central bankers might have been the masters of the universe of the past decade, but they know well what happened to the previous holders of that title.

Pakistan asks - Is ISIS really bad and unIslamic?

Pervez Hoodbhoy in The Dawn


PAKISTAN’S military and government have proscribed the militant Islamic State (IS, aka Daesh aka ISIS) group and declared it an enemy organisation. They have never explained why. Of course, IS’s atrocities — which include beheadings, crucifixions, suicide bombings, and intimidation of civilians in captured territories — have been condemned by many. It is also a fact that IS has killed many more Muslims than non-Muslims. But is IS to be faulted for bad tactics or is its goal to create an Islamic state in Pakistan itself wrong? Should attempts to make a global caliphate be condemned or, instead, assisted?

Our generals and politicians would rather bomb IS than argue logically against it because they know IS’s stated goal resonates with millions of ordinary Pakistanis. Through its internet machinery, IS declares it will establish God’s principality (mumlikat-i-khudadad) headed by a righteous caliph who would govern by God’s law. For this to happen territory must be seized and secured, idolatry and heresy eliminated, and the immoral mixing of men and women stopped. This is sweet music to many Pakistani ears.

IS literature claims that Muslims can properly practise their faith only in an Islamic state. This also resonates perfectly. The leader of Kashmiri separatists and a member of the Jamaat-i-Islami, Syed Ali Shah Geelani, put it succinctly: “It’s as difficult for a Muslim to live in a non-Muslim society as it is for a fish to live out of the water.”
More support comes from Allama Iqbal, Pakistan’s celebrated poet-philosopher who declared that the ultimate goal of Muslims is to create a caliphate. In his influential 1934 lectures The Reconstruction of Religious Thought in Islam, Iqbal said: “In order to create a really effective political unity of Islam, all Muslim countries must first become independent: and then in their totality they should range themselves under one caliph. Is such a thing possible at the present moment? If not today, one must wait.”


Pakistan’s generals and politicians would rather bomb IS than argue logically against it.

With such a powerful voice advocating the caliphate as an eventual goal, should one then accept IS’s vision as authentically Islamic? Does IS genuinely represent Muslim thought and Muslim aspirations today? For two strong reasons — the ones that generals and politicians fail to articulate — I think not.

First, IS claims its legitimacy through Islam. But this is futile. IS’s takfiri Islam is definitely not mainstream Islam. This one particular strain must be contrasted against countless gentler, differently reasoned, more humane forms that reject IS’s harsh interpretations. To say which one of these is the truer Islam is irresolvable since Islam does not have a central authority like the pope.

But IS wants ‘purification’ and so those Shia Muslims and Sunni Muslims who disagree with its version have been declared apostates, stoned, killed, and had their hands and feet cut off. Like the Afghan Taliban, IS delights in destroying humanity’s common heritage. It despises archaeology, women and non-Muslims. Even if some Muslims agree with IS’s deeds, most reject them.

Second, IS’s claim that Islam insists upon a caliphate is not supported by the Holy Quran. Every Islamic scholar has to agree that the Quran does not mention a territorial Islamic state. In fact, there is no word for a territorial state in classical Arabic. That which comes closest today is dawlah but this word acquired its current meaning well after the 1648 Treaty of Westphalia, when the European concept of a geographically defined nation-state was born.

Islam’s greatest sociologist and political scientist, Ibn-i-Khaldun (1332-1406), had emphatically rejected the concept of an Islamic state and opposed using religion in politics. Others such as al-Mawardi (earlier) and Syed Abul Ala Maudoodi (later) thought otherwise, but all agree that the holy texts are not governance manuals.

Quarrels among scholars would have been stilled if the Quran or hadith had defined even the broad outlines of statehood. However these texts provide no hint of an executive or of government ministries. How should administrative units be determined, and the police or army organised. Would there be jails?

Most tellingly, the holy texts leave us guessing on how an Islamic state’s ruler is to be chosen and what might be legitimate cause for his removal. To this day there are furious disagreements as to whether Prophet Muhammad (PBUH) did or did not specify his successor — or even a procedure for determining one. This created an enduring schism on how to select the next leaders of the faithful. So, for example, is Abu Bakr al-Baghdadi acceptable as the present caliph or should it be someone else?

There can surely be hugely different opinions on religious and political matters, including whether a caliphate is desirable or possible in a globalised world. These are tolerable, arguable differences. But what Pakistan absolutely must not tolerate is messianic radicalism that encourages the killing of innocents after labelling them kafirs. Whether a group is anti-Pakistan (IS, Tehreek-i-Taliban Pakistan), or pro-Pakistan (Afghan Taliban, Lashkar-e-Taiba, Jaish-e-Mohammad) is irrelevant. Every group that calls for violence against civilians inside or outside national borders should be banned. A victory of religious fanatics would ensure limitless suffering and the destruction of every Muslim society on this planet.

So far ideologically unchallenged, IS is now fast increasing its presence across Pakistan and particularly in Balochistan. Even as it loses territory in Iraq and Syria, its propaganda units are trying to create new generations of religious extremists, much as they have done in Europe. Decrying IS as a rogue movement is insufficient to reverse this trend. It is also futile to claim that IS has nothing to do with Islam because its leadership carefully quotes supportive holy doctrines to justify every major atrocity. Therefore IS must first be defeated on ideological grounds — military action can come later if necessary.

Counter narratives to radicalisation do exist within the Islamic paradigm. A meeting of ulema called by the National Counter Terrorism Authority that I attended earlier this year cogently argued that radical takfiri groups depart from Islamic tradition and that their interpretation of Islamic sources is incorrect. But these wise recommendations, like many before them, have met obscurity. No Pakistani civil or military leader of significance has had the courage to endorse or own them. Extremism can breed rapidly in this climate.

When it comes to meat, the kitchen is a battlefield – and conscience is a casualty

Ian Jack in The Guardian


When he was a schoolboy, the great polymath Jonathan Miller won a reputation as the finest chicken impersonator in north London.

The pleasure his friends and family took in his performance had encouraged him to get the linguistics absolutely right. Rival impersonators at his school were happy to make do with “buk, buk, buk, buk … bacagh” but the future satirist, actor, opera director and neuropsychologist noticed that the noise chickens made wasn’t so regular, that “chickens liked to lead you up the garden path”, as he wrote in Granta magazine in 1988.

“They would lead you to expect that for every four or five ‘buks’ there would be a ‘bacagh’ … What I noticed, after prolonged examination, was an entirely different pattern of chicken speech behaviour. Thus: Buk, buk, buk, buk, buk, buk, bacagh, buk, buk, bacagh, buk, buk, buk, buk, buk, buk, buk, buk, buk … BACAGH, buk, buk …”

There was a war on – rationing, a shortage of eggs. Miller knew chickens intimately because his father, a military psychiatrist, kept them, and towed them in a trailer behind the car as the family moved from one hospital posting to the next.

My own family’s chickens, perhaps kept a little later than Miller’s but for similar reasons, weren’t so well travelled. They merely moved out of their shed in the daytime and back again at night, through a little door that could be lowered and raised like a shutter in an old-fashioned railway booking office.


The industrialisation of the meat supply, which began in the 19th century, worked both for and against compassion

When we got rid of the chickens this sliding door was nailed shut, to survive until the shed’s demolition 50 years later as a mysterious architectural feature that made sense only to those of us who’d seen the creatures stalking cautiously through it – “buk, buk, buk” – in those faraway days of cod liver oil and powdered egg.

What happened to the inmates? My memory is inexact, but I remember a scene in the kitchen: a hen fluttering and squawking (“BACAGH”), my father laughing and half-crying at the same time. “I cannie do it, I just cannie do it.” The hen was a favourite of his called Betty, and what he couldn’t bring himself to do was wring her neck. I don’t know what happened next, or what became of Betty’s four or five companions – perhaps they were sold or given away, or had their necks successfully wrung.

I also don’t recall eating any chicken, and chicken on the menu would have been rare enough to be memorable then, and in our house and many other houses would remain so into the 1960s. All that remains is an image: a frightened hen and its frustrated would-be killer.

Two weeks ago, when the Guardian and ITV published their undercover investigation into dubious work practices at a West Midlands chicken factory, that memory prompted a fantastical calculation. The plant’s owner, the 2 Sisters Food Group, kills and processes 6 million chickens every week. Other firms in the UK kill another 11 million chickens, which means the country contributes about 875 million chickens every year to the global total of more than 50 billion that are reared and killed annually for food.

If only a tiny proportion of these birds were looked on affectionately by the people who killed them, the distress added to humankind would still be considerable: my fantastical calculation imagined that kitchen scene of 60-odd years ago multiplied many million times, like frames in a very long film, each flickering with remorse.

Of course, the ever-moving production lines of the industrial food system spare workers no time to reflect. And they’ve come after all – from 36 different countries, in the case of 2 Sisters – to make money rather than campaign for animal rights.

And of course, the point of the Guardian-ITV story was to raise concerns on the consumer’s behalf rather than the animals’, with footage showing chicken pieces being retrieved from the factory floor and thrown straight back on to the production line, and evidence that packets contained chicken older than the sellby dates suggested.

But while these malpractices may threaten human health, they carry much less emotional weight than the sight of the slaughtering and cutting process itself, no matter how hygienic or well run. They seem like small breaches of discipline in the corner of a gory battlefield that we usually take care to avoid any sight of.

The industrialisation of the meat supply, which began in the 19th century, worked both for and against compassion. On the one hand, it broke the relationship between the animal and his human keeper by taking slaughter out of the farm and the butcher’s shop and confining it to the municipal abattoir, where beasts were literally poleaxed by slaughtermen whose only business was killing. On the other hand, it made a later generation uneasy about the invisible cruelty in their midst. In an increasingly urban and technological society, where animals were sentimentally attractive, the notion of “preventable suffering” grew.

Under the banner of its irreconcilable title, the Humane Slaughter Association campaigned for the humane mechanical killer – the stun gun – that was already used in parts of continental Europe when the association was founded in London in 1911.

By 1913 a Birmingham company, Accles & Shelvoke, had come up with something rather better – the captive-bolt Cash pistol, named after the animal welfarist Christopher Cash, who first had the idea. Since the Slaughter of Animals Act in 1933, Cash pistols have stunned most of Britain’s cattle, calves and sheep and made the fortune of Accles & Shelvoke, which surprisingly still exists to make them.

Poultry are not prepared for death that way. The big processing plants have two methods. In the older, the birds are hung by their legs from a moving line that swings them head-first into a bath of electrified water, which according to the strength and frequency of the current can either just stun the birds (if religious tradition insists they be kept alive for bleeding), or kill as well as stun them. In the newer method, using gas, the birds pass through a machine with a controlled atmosphere that makes them first unconscious and then dead.

If consumers knew how farmed chickens were raised, they might never eat their meat again



These aren’t pleasant facts, and yet in most cases they represent a kindness – a quick and sure death – that has been absent in a typical chicken’s life until that point.

Felicity Lawrence, the Guardian’s writer on the food industry, has vividly described the effects of the genetic research that has gone into finding the most economically efficient bird. Fleshy breasts are particularly important in the broiler chicken. “By day nine, the broiler’s legs can barely keep its oversized breast off the ground. By day 11, it is puffed up to double the size of its [egg-laying] cousin … By day 35, it looks more like a weightlifter on steroids … bones, hearts and lungs cannot keep up. A large proportion of broilers suffer from leg problems … Birds that sit in foul litter suffer more skin disease. Deaths from heart attacks or swollen hearts that cannot supply enough oxygen to their oversized breast muscles are also common.”

Poultry now accounts for about a half of all meat eaten in Britain. It’s cheap. The cruelty that goes into the making of it is unconscionable.

Will India get over its obsession with godmen?

K N Pannikar in The Hindu

The recent revelations about the ‘divine preoccupations’ of godmen in the sacred precincts of their ashrams have been appalling, not because they were bereft of such qualities in the past. From the time of the Maharaj libel case (1862) through the intrigues of Chandraswami and Dhirendra Brahmachari, to the contemporary saga of Dera Sacha Sauda and Asaram Bapu, the list is unending. But this time the incidents of sex, murder and mayhem, which were reportedly enacted in their ashrams, are lurid and startling. That the godmen were able to pursue their interests for years without attracting the attention of the state is perhaps not surprising, given the nexus between political power and religious establishments, but it is reprehensible.

The unflinching faith of the followers in the divinity of godmen is the latter’s main capital, which is assiduously constructed over time. Under coercion or consent, the devotees appear to submit to the extortion or exploitation of godmen. Contemporary India looks like a modern country with scientific establishments, and high-speed trains and expansive highways, but set in a social situation reeking of medievalism, caste discrimination, religious obscurantism, gender inequality and superstitions.


Modernity and irrationality

The coexistence of modernity with irrationality and obscurantism, which has often been dismissed as a passing phase of a society in transition, has been a (the?) hallmark of independent India. The ruling elite pinned their hopes on economic development to overcome this impediment, but economic development has not been all-embracing. Facing the crisis thus generated by the apparently elite character of development, it was not surprising that a large segment of the population succumbed to the temptations of an unreal world which godmen proffered.

Yet another constituency of the godmen were the members of the burgeoning middle class of the post-Independence era. The hallmark of this class was the intense cultural and social crisis for which they sought a solution in other-worldliness advocated by the godmen. They were led to an island of liberation where all social inhibitions could be shed, and peace and salvation promised, through the medium of the godmen. The mindless support godmen thus elicit from their unsuspecting followers is used to garner social, political and economic power.

In recent times, the increasing number of godmen (and women) are spotted in State governments and corporate board meetings, educational institutions, and all other important places. They are not spiritual men but ambitious con artists who purvey deception, falsehood and religiosity in the name of god.


Education not enough

Rationalists and liberals looked upon education which promoted scientific temper and rational thinking as the antidote to what they conceived as a result of cultural and social backwardness. But education has not adequately fulfilled this role. After all, the substantial following that godmen command is not from the illiterate masses, but from the well-educated middle class that tends to celebrate the irrational in the name of culture.

Popular media, either consciously or unconsciously, promotes and reinforces irrationality and superstition. The reading material available in almost all Indian languages is replete with accounts of the charismatic personae and spiritual qualities of godmen. Not only religious channels, but some secular channels too telecast programmes eulogising their qualities and achievements. From these popular representations, and patronage they seem to enjoy from the state, they derive considerable legitimacy.


The godmen are here to stay, until social consciousness undergoes a qualitative change.

IMF: higher taxes for rich will cut inequality without hitting growth

Analysis supports tax strategy of Jeremy Corbyn’s Labour in UK – and undermines that of Donald Trump in US

Larry Elliott in The Guardian


The IMF said tax theory suggested there should be ‘significantly higher’ tax rates for high earners. Photograph: Oli Scarff/Getty Images


Higher income tax rates for the rich would help reduce inequality without having an adverse impact on growth, the International Monetary Fund has said.

The Washington-based IMF used its influential half-yearly fiscal monitor to demolish the argument that economic growth would suffer if governments in advanced Western countries forced the top 1% of earners to pay more tax.

The IMF said tax theory suggested there should be “significantly higher” tax rates for those on higher incomes but the argument against doing so was that hitting the rich would be bad for growth.

But the influential global institution said: “Empirical results do not support this argument, at least for levels of progressivity that are not excessive.” The IMF added that different types of wealth taxes might also be considered.

Labour seized on the report, calling for higher taxes on the rich, citing the IMF’s intervention as evidence of the need for a fairer tax system.

In its election manifesto, Labour proposed a new 45% tax band on those earning more than £80,000 and a 50% rate for those on more than £123,000.

John McDonnell, the shadow chancellor, said: “The IMF support the argument we made in the General Election for a fairer tax system. There is no evidence to support those who scaremonger about the effects of making the rich pay fairer tax.”

He added: “ Not only have the Tories slashed the top rate of tax, they still plan billions in tax giveaways to the super rich and big corporations over this parliament.”

Despite claims from ministers that Labour’s tax plans would be both politically and economically damaging, McDonnell believes higher taxes for the rich would be both workable and popular.

“With every day that passes the case for a change of direction at the Treasury grows. Instead of engaging in infighting in his own party the chancellor should listen to Labour’s calls for fairer taxes and increased investment, so we will build an economy for the many not the few.”

Theresa May has repeatedly attacked Labour’s approach as extreme, claiming in prime minister’s questions on Wednesday that Corbyn and McDonnell are on “planet Venezuela”.

But the prime minister conceded at a fringe meeting at her party’s conference in Manchester that public opinion appears to be more favourable to some of Labour’s economic ideas than Conservative strategists had assumed in the run-up to June’s general election.

“We thought there was a political consensus,” she said. “Jeremy Corbyn changed that”.

With Philip Hammond due to deliver his budget next month, it is unclear whether the government will press ahead with promised tax cuts for higher earners, including plans to increase the higher rate threshold for income tax to £50,000.

The fiscal monitor does not mention any country by name and does not specify at what level governments should set the new higher rate for top earners. But the report stressed that cutting tax for the top 1% had gone too far - a strong hint that the IMF has doubts about the pro-rich tax plan proposed by Donald Trump for the US.

Instead, the IMF said higher tax for the rich was necessary to arrest rising income inequality – the argument used by McDonnell and the Labour leader Jeremy Corbyn.

The fiscal monitor said most advanced economies in the West had experienced a sizeable increase in income inequality in the past three decades, driven primarily by the growing income of the top 1%.

Traditionally, governments have sought to make their societies less unequal by levying higher income tax rates on the rich and using the proceeds to help those less well off either directly or through public services.

But it found that income tax systems had become markedly less progressive in the 1980s and 1990s and had remained stable since then, even though growing inequality raised the need for a more progressive approach.

In an IMF blog, the head of the IMF’s fiscal affairs unit, Vitor Gaspar, said the average top income tax rate for the rich country members of the Organisation for Economic Cooperation and Development had fallen from 62% in 1981 to 35% in 2015.

“In addition, tax systems are less progressive than indicated by the statutory rates, because wealthy individuals have more access to tax relief,” Gaspar said in the blog co-written with Mercedes Garcia-Escribano. “Importantly, we find that some advanced economies can increase progressivity without hampering growth, as long as progressivity is not excessive.”

IMF research found that between 1985 and 1995, redistribution through the tax system had offset 60% of the increase in inequality caused by market forces. But between 1995 and 2010, income tax systems failed to respond to the continuing increase in inequality.

It also said inequality should be tackled by giving a more pro-poor slant to public spending.

“Despite progress, gaps in access to quality education and healthcare services between different income groups in the population remain in many countries,” Gaspar and Garcia-Escribano said, adding that in rich countries men with university education lived up to 14 years longer than those with secondary education or less.

“Better public spending can help, for instance, by reallocating education or health spending from the rich to the poor while keeping total public education or health spending unchanged,” they added.

In its separate global financial stability review, the IMF said it would take several years for central banks to return interest rates to more normal levels due to the risk of aborting recovery.

But the report also highlighted the risk that prolonged monetary support could lead to the buildup of further financial excesses. Too much money was chasing too few assets offering a yield, the IMF said.

A Treasury spokesperson said: “A fair tax system is a critical part of our plan to build a fairer society. Today, the richest 1% pay over a quarter of all income tax while 4 million of the lower earners have been taken out of income tax altogether.”

Data is not the new oil

How do you know when a pithy phrase or seductive idea has become fashionable in policy circles? When The Economist devotes a briefing to it.


Amol Rajan in BBC

In a briefing and accompanying editorial earlier this summer, that distinguished newspaper (it's a magazine, but still calls itself a newspaper, and I'm happy to indulge such eccentricity) argued that data is today what oil was a century ago.

As The Economist put it, "A new commodity spawns a lucrative, fast-growing industry, prompting anti-trust regulators to step in to restrain those who control its flow." Never mind that data isn't particularly new (though the volume may be) - this argument does, at first glance, have much to recommend it.

Just as a century ago those who got to the oil in the ground were able to amass vast wealth, establish near monopolies, and build the future economy on their own precious resource, so data companies like Facebook and Google are able to do similar now. With oil in the 20th century, a consensus eventually grew that it would be up to regulators to intervene and break up the oligopolies - or oiliogopolies - that threatened an excessive concentration of power.

Many impressive thinkers have detected similarities between data today and oil in yesteryear. John Thornhill, the Financial Times's Innovation Editor, has used the example of Alaska to argue that data companies should pay a universal basic income, another idea that has become highly fashionable in policy circles.

Image copyrightGETTY IMAGESImage caption A drilling crew poses for a photograph at Spindletop Hill in Beaumont, Texas where the first Texas oil gusher was discovered in 1901.

At first I was taken by the parallels between data and oil. But now I'm not so sure. As I argued in a series of tweets last week, there are such important differences between data today and oil a century ago that the comparison, while catchy, risks spreading a misunderstanding of how these new technology super-firms operate - and what to do about their power.

The first big difference is one of supply. There is a finite amount of oil in the ground, albeit that is still plenty, and we probably haven't found all of it. But data is virtually infinite. Its supply is super-abundant. In terms of basic supply, data is more like sunlight than oil: there is so much of it that our principal concern should be more what to do with it than where to find more, or how to share that which we've already found.

Data can also be re-used, and the same data can be used by different people for different reasons. Say I invented a new email address. I might use that to register for a music service, where I left a footprint of my taste in music; a social media platform on which I upload photos of my baby son; and a search engine, where I indulge my fascination with reggae.

If, through that email address, a data company were able to access information about me or my friends, the music service, the social network and the search engine might all benefit from that one email address and all that is connected to it. This is different from oil. If a major oil company get to an oil field in, say, Texas, they alone will have control of the oil there - and once they've used it up, it's gone.

Legitimate fears

This points to another key difference: who controls the commodity. There are very legitimate fears about the use and abuse of personal data online - for instance, by foreign powers trying to influence elections. And very few people have a really clear idea about the digital footprint they have left online. If they did know, they might become obsessed with security. I know a few data fanatics who own several phones and indulge data-savvy habits, such as avoiding all text messages in favour of WhatsApp, which is encrypted.

But data is something which - in theory if not in practice - the user can control, and which ideally - though again the practice falls well short - spreads by consent. Going back to that oil company, it's largely up to them how they deploy the oil in the ground beneath Texas: how many barrels they take out every day, what price they sell it for, who they sell it to.

With my email address, it's up to me whether to give it to that music service, social network, or search engine. If I don't want people to know that I have an unhealthy obsession with bands such as The Wailers, The Pioneers and The Ethiopians, I can keep digitally schtum.

Now, I realise that in practice, very few people feel they have control over their personal data online; and retrieving your data isn't exactly easy. If I tried to reclaim, or wipe from the face of the earth, all the personal data that I've handed over to data companies, it'd be a full time job for the rest of my life and I'd never actually achieve it. That said, it is largely as a result of my choices that these firms have so much of my personal data.

Image copyrightGETTY IMAGESImage captionServers for data storage in Hafnarfjordur, Iceland, which is trying to make a name for itself in the business of data centres - warehouses that consume enormous amounts of energy to store the information of 3.2 billion internet users.

The final key difference is that the data industry is much faster to evolve than the oil industry was. Innovation is in the very DNA of big data companies, some of whose lifespans are pitifully short. As a result, regulation is much harder. That briefing in The Economist actually makes the point well that a previous model of regulation may not necessarily work for these new companies, who are forever adapting. That is not to say they should not be regulated; rather, that regulating them is something we haven't yet worked out how to do.

It is because the debate over regulation of these companies is so live that I think we need to interrogate superficially attractive ideas such as 'data is the new oil'. In fact, whereas finite but plentiful oil supplied a raw material for the industrial economy, data is a super-abundant resource in a post-industrial economy. Data companies increasingly control, and redefine, the nature of our public domain, rather than power our transport, or heat our homes.

Data today has something important in common with oil a century ago. But the tech titans are more media moguls than oil barons.

The con behind every wedding

Anon in The Guardian

A lavish wedding, a couple in love; romance was in the air, as it should be when two people are getting married. But on the top table, the mothers of the happy pair were bonding over their imminent plans for … divorce.

That story was told to me by the mother of the bride. The wedding in question was two summers ago: she is now divorced, and the bridegroom’s parents are separated. “We couldn’t but be aware of the crushing irony of the situation,” said my friend. “There we were, celebrating our children’s marriage, while plotting our own escapes from relationships that had long ago gone sour, and had probably been held together by our children. Now they were off to start their lives together, we could be off, too – on our own, or in search of new partners.”

It’s bittersweet, this clash of romantic hope and lived experience. I am living it now, yo-yo-ing between the wedding plans of my daughter and son, both in their 20s, and the fragility and disappointment of my own long marriage. My days seem to be divided between excited chat about embryonic relationships that are absolutely perfect, and definitely going to last for ever, and remote and cold exchanges with a husband who has disentangled himself emotionally from me, and shows no signs of wanting to reconnect (I have suggested Relate many times; he is simply not interested).

To some extent, this juxtaposition of young love and old cynicism was ever thus: throughout time, weddings have featured, centre-stage, a loved-up duo who believe their devotion to one another will last for ever, while observing from the wings are two couples 30, 35 or more years down the line, battle-scarred by experience, and entirely devoid of rose-tinted spectacles – the parents of the bride and groom. And in the generation of “silver splitters”, these sixtysomethings are more likely than ever to be in the process of uncoupling, at the precise moment when their offspring are embracing the dream of lifelong partnership.

So how do we reconcile our cynicism – or, at best, our scepticism – for marriage and long-term love, with our offsprings’ enthusiasm to tie the knot, and embark on a life of seeming marital bliss? On one level, the phenomenon is heartwarming. It is testament, you could argue, to the resilience of the human spirit: however difficult our own marriages turned out to be, we war veterans look at our kids staring into each other’s eyes, and we melt inside. Yes, we think to ourselves, we made mistakes; we took paths that turned out to be wrong. Even, we think, we made fundamentally bad choices: we married the wrong men.

As a result, love was seriously skewed for us: but in the next generation – we nod our heads vigorously to this, while cheerily agreeing to a no-holds-barred expensive wedding – things will be different. True love will be theirs; the fairytale that eluded us will work for them, at last.

What hokum. As the survivor of a difficult marriage, this much I know: the biggest burden is the disappointment. And it is a disappointment born on my own wedding day in 1985: more than three decades later, the hopes of that morning still glint from the shadows. The expectations heaped on us, including by my in-laws whose own miserable marriage still had another two decades left to torture them, are the ghosts around the sad embers of our once-glowing fire.
So what can we do differently? Here’s the truth of it, as a wise friend said to me recently: in the 21st century, in a world in which women as well as men have choices and independence and long lives (all good), it will be increasingly difficult for one individual to answer the emotional, spiritual and physical needs of another, across many decades. Life is different now: we have bigger imaginations, we have higher expectations, we have more opportunities and, crucially, those opportunities continue well on into our 50s, 60s and 70s – and for all I know, into our 80s and 90s too. Even more significantly, we women have these opportunities: for men, they are less of a novelty. But their more widespread existence is the agent of seismic change in intimate relationships. We no longer need to put up with misery; we can alter the way we live.

I suggest that we, the parental generation, take a subtle lead in being honest with our twenty- and thirtysomethings about the realities of relationships, and love, and longevity, and choices. That we stop buying into the burgeoning and ever-more-elaborate wedding industry, a giant luxury liner that sails full-steam ahead, oblivious to the lifeboats and shipwrecks all around it in the water. At least begin to ask questions of the commercial interest that operates that liner, of its intentions and its fallout (not to mention its profits). There is more than coincidence, surely, in the way we seem to invest more and more resources in marriages that are less and less likely to survive.

How we introduce these notes of caution into our children’s lives is a much more difficult task. As parents, we want nothing more than happiness for our offspring: none of us wants to burst their bubble, at the precise moment it is so expanded.

As so often with parenting, though, we have to take the longer view. Sometimes I think that, even though my children may not understand or welcome some of the messages they get from me now, with me in my mid-50s and them in their mid-20s, there may be moments in the future when what I said, or how I behaved, suddenly makes sense. Parenting means filling your children’s backpack with supplies, and some of the supplies down the bottom of the bag may not be needed for many years to come.

One important factor in all this was raised by Sylvia Brownrigg in these pages earlier this year, and it is this: children are not interested in their parents’ relationships. They’re not interested in their parents’ marriage (beyond hoping that it is incident-free, and as calm as possible) and they are certainly not interested in their parents’ other relationships, if those happen or are ongoing. So we cannot weigh them down with the detail of why our marriages are failing, or unhappy, or disappointing – and yet, we must somehow signal to them that life is a long journey, and that it may be a mistake to invest too much in one central relationship on into the far distant future.

We are pioneers, us fifty- and sixtysomething mothers; we are walking a tightrope, and it is difficult to get the balance right. Sometimes we wobble; sometimes we fall right off. But the fact that we are walking the tightrope at all is the important bit. We are trying to be authentic, to our burnt-out marriages and to ourselves, as well as to our children and the realities of their future.

And choices cut both ways, too. Remember those mothers at the wedding party? My friend, as I say, is now divorced; but the bridegroom’s parents are having counselling, and have not ruled out the possibility of sharing their lives again.

Being more ambitious for ourselves doesn’t mean our marriages can’t survive, but it does mean a bad marriage can only survive if it can change. And that surely is the message, and the hope, we want to give our children, as they taste the realities of long-term love, or long-term what-was-once-love, and what just possibly might be love once again.