David Finkelstein & , : {}
I have been reading Said Sayrafiezadehs wonderful memoir When Skateboards Will Be Free and laughing. Its the tale of a childhood spent following his parents around as they work for a revolution that will never come (and when the author will finally get the skateboard he covets, because they will all be free).
Sayrafiezadeh records the hours spent sitting by a table piled high with books about Che Guevara, as his Mum stands in the street trying to sell the Militant newspaper to passers-by. He writes of how people plot their approach, head down to avoid having to engage. And how his mother vainly repeats the same refrain, oblivious to their lack of interest. His mother always thinks the revolution is about to come. But it never does.
My laughter is partly self-recognition. I know what it is like to be obsessional about a cause that others find too obscure to talk about. In fact, I have just such a bee in my bonnet right now.
And you? Youre the person who plonked yourself down on a seat on the bus without checking, only to find your neighbour muttering to himself. You are the unfortunate who has caught the eye of the nutter on the bus.
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Heres my refrain. We need a spending review. Its a con not to have a spending review. Its a scandal not to have a spending review. People who wont announce a spending review, Out! Out! Out!
As you are stuck with me for a few stops, (seeing as you are too English to get up and leave me to it), Ill start at the beginning. On Monday the US conservative journalist David Frum described the passage of Barack Obamas healthcare legislation as the Republican Waterloo, its worst defeat in modern times. His reasoning was instructive. He believes that even though the Bills proposals were very unpopular during its passage, they have become almost impossible to reverse now that they have become law.
An instant may be all that separates the moment when Obamacare was a proposal from the moment it was law, but in political terms the difference is an age. For what is at play are two of the most powerful forces in social psychology anchoring and loss aversion working together.
In his book Predictably Irrational, Dan Ariely recalls an experiment in which he asked students to price a number of bottles of wine, having first written down the last two digits of their social security number. He found that they correlated. Those with the highest two social security digits (say 80 or 99) priced the wines more highly than those with a low pair (20 or 15 for example). The students unconsciously used the digits as an anchor for the wine price even though the two were utterly unrelated.
We all do this. The first time a salesman shows you a plasma TV set, perhaps it costs 500. You will then judge sets as cheap or expensive in relation to that price, whether conscious that you are doing so or not.
Just as most people anchor, so most are loss averse. Behavioural economists have shown that people strongly value avoiding losses over making gains. In other words, when evaluating a risk, they would expect to be very heavily rewarded, for the upside to be disproportionately large, if a loss was a serious prospect.
Together, anchoring and loss aversion have an almost irresistible political force. With Obamacare, a proposal to change the status quo has become the status quo. In future debates on healthcare people will anchor themselves to the new law and compare all suggested changes to it. And they are likely to resist any that threaten a loss to their position.
Few politicians understand how this works as well as Gordon Brown. And on becoming Chancellor of the Exchequer, he fashioned a political weapon that takes brutal advantage of these rules of social psychology the spending review.
In 1998 Mr Brown announced his spending plans not simply for the coming year, but for the coming three years. And he pledged that he would repeat the exercise every two years, mapping out a course for the next three-year period. This was good public policy, one of his best innovations. It allowed departments to plan and the Treasury to hold them to account.
But it was also good, even lethal, politics. In 2000 and 2004 the review allowed Mr Brown to establish spending plans for a period stretching halfway into the next Parliament. It meant that in the 2001 and 2005 elections, Labour policy was the anchor, and the Tory proposals could be seen as risky change with voters natural loss aversion acting to Labours advantage. Voters reacted exactly as the behavioural economists would expect to Tory proposals. They found the threatened loss of spending more worrying than they found it enticing to be offered an equal amount in tax reductions.
The anchor worked in a second way. Tory proposals, made in opposition, seemed callow and ill-thought through compared with the solid government plans, which must have something going for them because they were, well, government plans.
So the spending review works. And Mr Brown knows it. Robert Pestons biography of the former Chancellor tells how Mr Brown is pressed by Bill Clintons adviser Sidney Blumenthal to run a budget surplus but rejects the advice because it would make things too easy for the Tories, reducing the political potency of the spending review. And in 2006 he put off the review for another year so that he could announce its results when he first became Prime Minister.
Which means we are due one right now. Right now, I tell you! But are we going to get one? I think not. We will get a Budget, but no proper spending review. And given its political potency, that can only mean one thing. That the Government knows that a spending review would be so painful, so dreadful, that they are prepared to forgo its usual advantages.
It is scandalous to have had a review through all the good years but refuse to have one now. And furthermore, its ... oh, is this your stop?
daniel.finkelstein@thetimes.co.uk
