this might be an off-cut from a book or it might not. also be warned it doesn’t have a conclusion, it’s just what ended up on my screen when I started typing this morning about the general theme of economic cybernetics …

There are many different ways of valuing a building. You can base the valuation on the assumption of a sitting tenant paying market rent, or you can try to guess what it would achieve in an immediate sale. You can include speculative value of future development or not; there are at least four approved methods in the surveyors’ handbook, all suited to different assumptions about the near term future of the building – is it being valued for probate, as collateral for a loan, as part of a bankruptcy estate or to be marketed by a speculator?

Even when you have agreed on the methodology, different people will make different assumptions about important facts. What kind of a tenant would this building attract, and how consistently would the rent be received? What are the likely maintenance costs, and when will it need a full refit? In a number of contexts, it’s appropriate to commission more than one person to value the building, and when you do, you tend to get surprisingly different results.

What happens then? The answer shocked me a little when I found out about it, during the course of some litigation I was writing about. Having done all my training as an economist, I presumed that the natural – the obvious, in many ways the only thing to do would be to take the average of the estimates. Assuming that the estimates were independent, this would be bound to be a better estimate of the “true” value than any individual one.

This is absolutely forbidden by the surveyors’ handbook, though. Averaging is not permitted as a way of reconciling different valuations. Their professional system does not treat valuation as a statistical process, basically. If different valuers get different results, then you either have to live with that, or bring them together to reach a consensus. Everyone has to explain their assumptions, show what’s driving the model and get something that they can all agree to be reasonable, even if it was not their first choice.

It interests me greatly, because we now have three ways of creating a valuation – as well as the averaging and consensus methods, there is of course the market price, which economists often quite lazily treat as if it was the average opinion of the market when it isn’t[1] And these are three different ways of creating a mental object.

Prices and values are some of the more important shared hallucinations that we create and use to manage our daily life. The method of their construction is probably important. I feel like the surveyors’ consensus method in some way creates a more robust hallucination, obviously at considerably greater cost in resources and in time. The market price is created as a by-product of another activity, and consequently it can do some strange things.

[1] (it’s the highest amount that gets enough bids; under quite restrictive assumptions and perfect competition, this would tend to be the same number as the average opinion, but it’s not an averaging process and the assumptions often aren’t satisfied).

I had a few Thoughts about that essay about the plight of young white men in the age of DEI, that’s been going round, but I’m not sure they’re actually worth a full post, which is why yesterday’s is late and today’s is too long, sorry for both those things. In summary, they were:

1. The “bias against Promising Young White Men, for Things They Did Not Do, at the hands of Boomers Who Were Much Worse” is a real phenomenon that is really just an arithmetic consequence of stock-flow consistency; if you want to change the composition of a stock quickly, you have to change the flow by a great deal, and that means that there is a transitional generation that gets hammered. I’ve been writing about it, usually facetiously, in the context of financial recruitment for more than five years.

2. But, what are you gonna do? You can’t ask people to wait five decades to make the change on a “funeral by funeral, science improves” basis. There are always going to be transitional generations[1] and it is always going to be expensive to compensate them. And generally, the social attitude to risk bearing is that this isn’t a special kind of risk you get specially made whole for; it’s more similar to the general business and economic risk that everyone has to bear.

3. And come on, it’s not like anyone’s asking these guys to go and fight in a war. Despite having picked some of the absolute peak industries to experience the transition problem in (very high starting point in terms of bias toward Promising Young Men, very low retirement rate of old men, overall environment of contracting labour market), the essay author admits that he and all his mates basically did all right, some of them got substacks, some of them built ticket resale businesses, etc. They might not have got the socially prestigious jobs they dreamed of, but few do! It might be galling to be a Managing Director at Morgan Stanley if you had your heart set on being a Partner at Goldman Sachs but come on, dude.

4. The real victims of the intergenerational inequity were the previous generations of women and minorities, who didn’t have their whole lives ahead of them when the rules changed, but who didn’t get included in the new compensatory system. I wouldn’t mind reading an essay by one of them.

5. And you have to be very careful when writing this sort of thing, because a) it is always going to sound whiny, b) you are very adjacent to some very smelly stuff in terms of aspersions on the people who were hired under the new regime. The editors at Compact seem to have done a pretty good job in this regard, but it still makes painful reading at some points. Basically, I think the “disenchantment of the generation of white men who bore all the costs of previous generations badness” is interesting enough to be worth maybe one magazine essay, and this guy’s written two, so he is over budget.

Anyway, it got me thinking about the question of “meritocracy”, because that’s what everyone jumped to when reading it. And … I think there’s no such thing. There is such a thing as merit, in the sense that some people are much better at their jobs than others, look around if you don’t believe that. But it’s not something which the interview and recruitment processes of professional and managerial jobs are set up to measure, at all. Like the IQ test, these things get all of their predictive capacity from the detection of gross dysfunction; they are no use whatsoever in distinguishing mediocrity from genius.

[NOTE AND PLEA: my techie and computer-writing-guy friends, I love you all so much but this bit isn’t about you, it’s not about 10x engineers, it’s not about writing code. You have your own ways and practices which I don’t know about, one day I will learn about them but this post is about PMC jobs, please don’t write letters!]

Basically there are four career stages with associated recruitment processes:

ENTRY LEVEL: A bunch of kids with resumes. Some of them will be creative thinkers, hard workers, good managers, some will be lemons. You are absolutely kidding yourself if you think you can reliably pick winners based on the information available. All you can do is select out people who aren’t even capable of keeping their massively disqualifying personality problems under control for the length of a selection centre. You are going to be selecting based on a bit of nepotism, a bit of PLULPLU (people like us like people like us), quite a bit of “am I in a good mood, did I have a nice lunch” and mostly random chance. We all know, by now, that your perceptions are going to be quite biased by PLULPLU and so the 50/50 balls will break in favour of the Promising Young Man too often, so there are systems and processes to try to aim off for that. They make the selection process neither better nor worse, but at least it’s fairer.

SLIGHTLY ABOVE ENTRY LEVEL: By now, people have a bit of time in the job and have begun to develop a track record. They have people who can recommend and vouch for them. And so …

… nope, sorry, it’s still basically random. The real lemons have dropped out, but that “track record” is mostly pure luck, and the references they can give are PLULPLU, luck and bias. You still need to aim off for Promising Young Men and you’re still picking at random.

Yes, this is even true in the examples everyone tries to give of “my job is different actually because they don’t care who you are actually as long as you make money actually”. Even “objective” performance metrics are formed in a context. There are a thousand and one stories of traders who made fantastic profits, then moved to a different firm and suddenly lost all their apparent talent because they were in a different context and hadn’t been able to move their information network.

AN ENTIRELY THEORETICAL MOMENT OF PURE CLARITY WHICH HARDLY EVEN EXISTS: Mid career when you really can get a sense of someone’s merit, because they’ve now produced enough good work in enough different contexts that it’s unlikely to be chance. But how many people are actually applying for a new job at this point in their career?

SENIOR HIRES: At this point, the social capital is the merit. In professional and managerial jobs, your value, your talent, your objective performance and your network are all different names for the same thing. The biases inherent in the system have done the damage by this point and there’s no reversing it. So you are probably stuck with your pale and male hires, but please don’t pretend that there’s anything particularly meritocratic to it.

I think the reason we try to pretend that there’s any possibility of meritocracy is that the gatekeep to the professional and managerial class is “being good at exams”, and that we therefore spend our whole lives subconsciously thinking that success is an exam and that promotion is what happens if you get a good mark on it. (This might explain why academia itself has such a bloody awful case of meritocracy-thinking). Even the most talented senior members of the PMC will always get together and go “my word, I wouldn’t get hired today”. And it’s kind-of-sort-of true, not in the sense that necessarily today’s young people are any more talented, but in the sense that having rolled a six to get where you are today, you can recognise that if you rolled the dice again, it probably wouldn’t be a six.

[1] This is the only context in which “intergenerational inequity” makes sense, by the way; if something has changed so that a particular cohort is affected.Things like pensions aren’t really transfers from young to old, because today’s young will one day be old.(The UK’s “triple lock”is for the most part a transfer to the young of today, from the young of thirty years hence.)

Just a thought on the general subject of All Of This Stuff, occasioned by a conversation on social media and by leafing through “The Unaccountability Machine” in the hope of remembering how to stretch my poor old head around a book-sized set of concepts to hold the entire structure all at once.

In that book, I diagnosed the problem of populism as being that people had got tired of not being listened to by the systems that governed them, and responded by using the only remaining communication channel they had. To take the title of my post on the US elections, the gap between governance and governed had got so big that the only signal that channel could carry was a scream. This was (and is) my theory of Trump, Farage, Meloni, etc etc.

But there’s an obvious objection; paying attention to these voters doesn’t actually seem to help. The British Labour Party, for example, does nothing other than performatively listen to the concerns of the post-working class in post-industrial regions, abandoning the socially liberal middle class part of its coalition to do so. The electoral results have been … pretty bad.

Why? I think back to the concept of “hysteresis”, which was very big in econometrics when I was an undergraduate. The word comes from engineering; it describes the state of, say, a spring which you’ve stretched too much so it won’t spring back anymore. In economic concept, it refers to a similar well-observed property of unemployment, that long or deep recessions produce a “scarring” effect which reduces the capacity of the economy so that you can’t just reverse the shock that took you into recession.

There are a lot of reasons why this happens, but a significant research program seemed to find that there are genuine bad consequences at the individual level from being unemployed. People get demoralised, they lose skills, they just “get out of the habit” and become less employable. It’s pretty tragic, and one of the best reasons to try as hard as you can to not have major episodes of unemployment.

Something similar might be going on with the angry popilists of the world. Over the course of the events described in my “cybernetic history of the neoliberal era”, people just got out of the habit of being voters. They forgot what it was like to be involved in politics, they got used to the emotional charge of not being listened to and lost the skill of communicating politically themselves. Now, the political system is listening to them – my god, it’s listening too much to them – but they don’t feel like it is, because they no longer recognise the sensation of being listened to.

What do you do in a situation like this? In any other context, from a bad marriage to a failing brand, the expert advice would be “it can’t be saved, move on”. But of course, the government is a unique entity in our system, because it can’t do that.

Last week, I was lucky enough to go to the launch of the Earth Rover project, which is partly based at our local university in Exeter. It’s really interesting and optimistic; the idea is to use seismology to measure the properties of soil. Knowing more about the condition of the soil under the ground means that farmers might have less need to destructively deep-plough it, and be better at estimating the amount of nitrate fertilizer it actually needs, rather than paying for truckloads of the stuff to basically tip into the River Exe.

Talking to people there, I was alerted to quite an interesting question which fits into a lot of the subjects of this ‘stack; what control and governance do you need over the data that’s generated? Information about soil quality is actually quite commercially important stuff; since the days of David Ricardo, we’ve known that soil quality determines the ground rent, and that this fact has pretty important distributional consequences for the incomes of landowners and tenant farmers.

And in another key theme, industrialisation matters. It’s always been possible for a farmer to get a reasonable understanding of soil quality – if nothing else, just dig up a shovelful and count the worms. But of course, when you do that, the information is largely tacit and private. The point of the Earth Rover project is to industrialise its production, and to greatly expand its scope. Which is great, except that it raises a bunch of new issues, because the large scale and high resolution data that’s generated is now “legible”, in James Scott’s sense.

So you need to be quite careful about what happens to that data, and to do quite a bit of thinking about what happens to it, ahead of time, to make sure that you’re not upsetting a load of economic and social relations by accident. This hadn’t crossed my mind at all, and I was rather pleased to discover that the Earth Rover project is way ahead in thinking about questions of data ethics alongside the actual scientific work of the project.

The new book is going in some unusual directions, and is consequently spawning some offcuts. This week I got to thinking about one of the oddest but most effective financial regulators I’ve ever known – the City Panel on Takeovers and Mergers. (I’m talking here about the old-fashioned, pre-2006 Panel; things are a bit different today).

This body has the responsibility of ensuring fair practice when public companies are taken over – basically, that minority shareholders get a fair deal, that incumbent management don’t abuse financial structuring to protect themselves and that companies aren’t disrupted too much from their actual business by speculative and aggressive tactics. Basically, it’s operating in that middle ground between law and professional ethics which I wrote a bit about in “Lying for Money”, the space where the internal best practices of good behaviour in a particular market start being elevated to the level of legal rules, simply because the thing itself is so important.

One interesting thing about the Takeover Panel is that it was mainly staffed by secondees from the banking industry. This was itself an indication of a very high-trust society, of course. If you wanted to have a senior career in investment banking in London, then you sort of accepted that part of that career would involve doing your time on the Takeover Panel, like an equivalent of national service for capitalism. Also, everyone trusted each other enough to be confident that the secondees on the Panel wouldn’t favour their own employers’ deals, and all the employers understood that although it was inconvenient to lose the services of one of your best bankers for a couple of years, they benefited from the system as a whole, and everyone took a turn.

But the most interesting thing about it was the way it enforced its judgements. Before 2006, the Takeover Panel had no statutory authority at all, but nevertheless it was extremely feared and people for the most part did what they were told by it, even if they thought the decision which had gone against them was very unfair. Because the Takeover Panel had the ultimate sanction at its disposal – the “cold shoulder”.

The cold-shoulder order was very infrequently used indeed, because people were so terrified of it. It simply involved publishing a notice that a particular person or firm was to be cold-shouldered. And the understanding was that if you worked with or for someone subject to the cold-shoulder, you would be cold-shouldered yourself. Because everyone knew that the big and important banks which formed the backbone of the Panel would always respect the cold-shoulder, it had a sort of viral property; nobody who relied on being able to work with Barclays would touch anyone who was cold-shouldered, so nobody who relied on being able to work with one of those firms would dare to, and so on; basically, anyone who got cold-shouldered would be completely shut out of the financial industry.

As I noted above, this was put on statutory ground in 2006, and now it’s just an FCA regulation that licensed professionals have to respect the cold shoulder. But this wasn’t because the viral version wasn’t working, far from it. The legislation was just made necessary by a European Directive, which was passed because other financial centres hadn’t been able to make similar arrangements work.

Viral sanctions like this, in my view, aren’t used enough; they could be a very good way of extending enforcement into areas where it’s proved difficult in the past, like social media platforms and AI governance. The state has a really useful property that it’s a very big client that lots of people really want to do business with, which makes it an ideal “seed” for a cold-shouldering regime. If you just say “we think that [some pattern of destructive activity] is bad, and that facilitating it warrants the cold shoulder”, then as long as you’re prepared to go through with that, then even if the bad actor has structured its operations so as to avoid direct enforcement, it will find it increasingly difficult to do business, simply for want of customers and providers of essential inputs.

It interests me that this is almost, but not quite, what the USA has done with the global dollar network.It’s also, as far as I can tell, how the Advertising Standards Agency informally works (the ASA has almost no statutory powers of enforcement, but advertising is a small world in which the principal players all know that they benefit from maintaining standards).This is a kind of positive version of Gresham’s Law, in which good practice co-ordinates to drive out bad, and I think we might need to make much more use of this kind of mechanism to reverse our otherwise inexorable slide into the bad, low-trust equilibrium.