Long-term investing & the equity premium

Juts a quickie, but there's a theory out there advanced by the likes of Richard Thaler that the equity premium (the amount equities outperform say bonds) may be due to myopic loss aversion - a mixture of investors seeking to avoid losses and frequently reviewing portfolios. If this is the case, does it follow that if investors like pension funds can be persuaded to develop genuinely long-term investment strategies then the equity premium would reduce?

Goodwin's pension

There are a few issues tied up in the hoohah over Fred Goodwin's pension. Much as I think the size of many company directors' pensions are completely unjustified, I'm wary of the demand to unpick contractual arrangements, because it may be thin end of the wedge. In short my worry is that if we set a precedent it may get applied further down the food chain when someone is said to have 'failed'.

However, in this case the principal issue as far as I can see is that (if the reports are accurate) he has got an unreduced pension at 50, when the scheme's normal retirement age is apparently 60. If that's the case then this was a serious failure by the company's remuneration committee, and I'm gobsmacked that they suggested it or let it go through. It's also almost certainly not contractual and as such not forced on them. So why on earth should he get any sort of sweetener? This is surely further evidence of just how badly boards have become infested with self-serving attitudes in respect of remuneration. I'm actually less surprised that Goodwin has said he won't voluntarily give up any of his pension.

More broadly, whilst £650k a year is a serious wedge, it probably wouldn't put Goodwin in the top 5 in terms of the highest annual pensions for directors of FTSE100 companies. There's another problem here - the continuing differential treatment of pensions for staff and directors in the same companies. In some companies directors get a better accrual rate in DB schemes, or a better contribution rate in DC schemes, or massive payments in lieu of a pension (50% plus of salary for a couple of directors at HSBC for example). There is absolutely nothing to stop remuneration committees changing these arrangements so that future accruals/contributions are made on the same basis as for other staff. And there should be a maximum limited on payments in lieu.

Unfortunately to date institutional investors have (surprise!) shown very little interest in this differential treatment. Let's hope that, now they are under pressure to up their game, institutions crack down on this unjustifiable double standard.

More on Animal Spirits

Chris Dillow has a boss review of it here. I'll try and post up my own (rather less informed) review of it shortly.

Chuggers and motivation

There's an interesting paper in this book which looks at the effects of incentives and punishments on behaviour. The paper is called 'Incentives, punishment, behavior' if you're interested.

In one experiment Israeli schoolkids were given the job of trying to elicit charity donations from members of the public by going door-to-door (apparently 'donation days' are a regular thing in Israel). They were split into three groups, and within in each group divided up into pairs. The first group were given a motivational talk beforehand, and told that results of of the collection would be published so that the amount collected by each pair would be public knowledge. The second group were given the same information, but also told that they would be given a reward of 1% of value of the donations elicited (to be paid separately rather than taken out of the donations). The third group were also given the same information but also told they would receive a reward of 10% of the value of the donations.

So the results - the first group (no incentive) collected the most, the second (small incentive) collected substantially less, the third group (significant incentive) collected more but still some way behind the first group. It does seem to suggest that small incentives may crowd out intrinsic motivation.

One caveat - if we were to try to apply this to the Charity Muggers - is that I have read another bit of research (can't find it immediately) that suggests that intrinsic motivation does drop off if it's a mundane task. Which suggests that actually offering a decent incentive for longer-term campaigns is sensible in terms of keeping chuggers motivated. This doesn't take into account the impact that they have on the subjects of requests for donations stopped on busy streets and whether this affects their desire to make donations... :-)

Framing nationalisation

Via S&M I came across this. Interesting to see how framing has become part of policy (it always has been, of course, but Lakoff seems to have given it more emphasis).

Animal spirits

Here's a very simple argument from Akerlof and Shiller for why behavioural factors need to be taken into account in macroeconomics:

In their attempts to clean up macroeconomics and make it more scientific, the standard macroeconomists have imposed research structure and scientific disciple by focusing on how the economy would behave if people had only economic motives and iof they were also fully rational. Picture a square divided into four boxes, denoting motives that are economic or noneconomic and responses that are rational or irrational. The current model fill only the upper left-hand box; it answers the question: How does the economy behave if people have only economic motives, and if they respond to them rationally? But that leads immediately to three more questions, corresponding to the three blank boxes: How does the economy behave with noneconomic motives and rational responses? With economic motives and irrational responses? With noneconomic motives and irrational responses?

We believe that that the answers to the most important questions regarding how the macroeconomy behaves and what we ought to do when it misbehaves lie largely (though not exclusively) within those three blank boxes.

I'll post some bits and pieces from the book, which is pretty good if not quite as great as I was expecting, in the next few days.

And here's the passage from Keynes' General Theory that they take the title of their book from, which is rather good too:

Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits - of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on the exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but mathematical expectation, enterprise will fade and die; - though fears of loss may have a basis no more reasonable than hopes of profit had before.

Apologies for typos as usual...

A lack of clear thinking on bonuses

Via Owen I came across this article by Jamie Whyte, author of Bad Thoughts: a Guide to Clear Thinking. It's the second time he has written about financial incentives in the banking sector, and the second time I think he has failed to demonstrate clear thinking himself. His point this time can be summed up in these two paras:

Bank managers do not have short-term incentives. Most already receive a large proportion of their variable pay in bank shares or in cash bonuses that depend on the share price. Share prices provide a long-term view of a company’s performance, being determined by its expected profits from now until eternity.

Bank managers took excessive risks not because they had short-term incentives but because, in the years before 2007, the credit and stock markets failed to “price in” those risks. If not for this failure, banks’ cost of capital would have begun to rise, and their share prices to fall, much earlier. Bank managers seeking to maximise their bonuses would have reduced the risk-taking that caused the current crisis.

Given that he's a self-appointed clear thinker I'm surprised he failed to spot a few qualifications we need to make. First up, what do we mean by 'short-term'? If it's not defined then we are in trouble. For a pension fund investing in bank shares, short-term might be measured in terms of a few years. Given that bonuses and even long-term incentive plans often have a performance measurement period that is less than many fund management mandates awarded by pension funds, I think it is fair to describe the incentives provided as short-term, for those types of investors.

Second, we need to consider the scale of the incentives available. Not all bankers want to get to the top of the tree or spend their whole career in the industry. The scale of rewards on offer do sometimes enable individuals to think in terms of their retirement. And if they can make enough quickly enough to think about bailing out, again I think it's fair to talk about the incentives being short-term.

Third, the fact that some rewards are liniked to share prices doesn't necessarily prove anything. One could make the argument that actually rather than making the incentives long-term, it actually provides a further short-term incentive - to keep the share price up. This may involve... err... taking excessive risk, if the market isn't keeping too close an eye on how the bank is making money.

Finally he says the real story is that markets failed to price in risk. Probably this was a contributory factor, but how does that disprove that short-term incentives spurred on some of the reckless decision-making? Why does there have to be a single cause? Weak market pressure AND short-term incentives could have been drivers. And we could add that perhaps 'the markets' didn't price in risk because some of the participants also have short-term incentives, and therefore also wanted/needed to keep the party going as long as possible.

Far from clear-thinking, this article seems to be designed to let remuneration policy off the hook. I might have some sympathy with that, because I'm really undecided on what impact incentives have on behaviour, but that's an entirely different proposition. To me the argument in this article just doesn't hang together.

Fund manager stock-picking and inefficient markets

There's an interesting paper here, one of those put out as part of the activities of the Paul Woolley Centre for the Study of Capital Market Dysfunctionality.

Here's the abstract:

This paper provides powerful evidence that mutual fund managers can pick stocks that outperform the market. Many have argued that the inability of mutual fund managers to outperform benchmarks is the most persuasive evidence in favor of capital market efficiency. Berk and Green (2004) argue that this is not necessarily the case, because factors related to the structure of the money management industry will cause even good stock pickers not to outperform. We circumvent this problem by examining the performance of stocks that represent managers' "Best Ideas." We find that the stock that active managers display the most conviction towards ex-ante, outperforms the market, as well as the other stocks in those managers' portfolios, by approximately 39 to 127 basis points per month depending on the benchmark employed. This leads us to two conclusions. First, the U.S. stock market does not appear to be efficiently priced, since even the typical active mutual fund manager is able to identify a stock that outperforms. Second, consistent with the view of Berk and Green, the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers, even though they are able to pick good stocks.

Choonage

Off-topic, but a quick plug for the ace Black Diamond by Buraka Som Sistema which I've been listening to at home recently. Apparently the genre is kuduro: "a type of music born in Angola and immediately exported to Lisbon suburbs in Portugal".

Bankers' self-interest vs market equilibrium

From that man again:

It is the self-interest of the butcher and baker that leads to the provision of meat and bread. This dictum, propounded by Adam Smith, has led to the proposition that the pursuit of self-interest leads to the achievement of market equilibrium; the neoclassical results follow from the effects in markets of action based on self-interest. It is in the self-interest of bankers to make loans, to spread the use of their services, and it is in the self-interest of investors to use bankers' services as long as the price of capital assets exceeds the supply price of investment goods. Whereas in commodity production the process of supply generates income equal to the market value of supply, in financial markets with responsive banking the demand for finance generates an offsetting supply of finance. Furthermore, if the supply of finance exceeds the demand at the current relative price of capital assets and investment output, the excess supply will push up the price of capital assets relative to the supply price of investment output, and this will increase the demand for investment and therefore finance.

In a world with capitalist finance it is simply not true that the pursuit by each unit of its own self-interest will lead an economy to equilibrium. The self-interest of bankers, levered investors, and investment producers can lead the economy to inflationary expansions and unemployment-creating contractions. Supply and demand analysis - in which market processes lead to an equilibrium - does not explain the behaviour of a capitalist economy, for capitalist financial processes mean that the economy has endogenous destabilizing forces. Financial fragility, which is a prerequisite for financial instability, is, fundamentally, a result of internal market processes.

Bits n bobs

The news on bonuses at RBS seems to be a reasonable development, although, much as I don't want to see bankers getting performance pay from the taxpayer, I can't help feeling this is a bit of a side-show. There's a danger that all the hot air about bonuses distracts from bigger questions about how the banks on taxpayer life support should be run. Interesting comment at the end of the Beeb piece though:

"These short-term cash bonuses have been so terribly destructive," said Ruth Lea at Arbuthnot Banking Group.
"If the taxpayer hadn't bailed out this bank in the early part of October, this bank would have been bust and these people would have been out of a job," she added.

Yep, that Ruth Lea - ex-IoD head of policy and TPA supporter - who only last year was saying that remuneration was an issue for companies and shareholders and the Government should keep out (although of course she could argue that she is being consistent as now the Government is the controlling shareholder). Is it a sign of the times that she is also bashing bonuses, or does the bonus issue simply serve as a useful lightning rod?

Meanwhile John Gray has a news bit about Unison capital stewardship activity.

On an unrelated point I recently read Black Mass by the other John Gray. I found it a bit disappointing actually, especially having enjoyed Straw Dogs so much. While I enjoyed the stuff about how utopian belief systems seek to fit a narrative to history (be it historical dialectics, the 'end of history', the second coming, whatever) it wasn't quite what I was expecting. There is some good stuff in there though and I'll try and post a couple of chunks.

Finally, I am (saddo that I am) really excited about the imminent arrival of this book which I ordered ages ago, and which Amazon have told me is in the post.

2 Up

I just realised that this blog is now two years old. I just had a quick look back over the labels on my posts and the 10 most popular (in descending order) are -

Private equity
Capital markets
Pensions reform
Tories (oh dear)
Workers capital
Shareholder voting
Behavioural economics
Blogging
TUC
SRI

Obviously I was blogging a LOT about private equity during 2007, but it went much more quiet in 2008. Can't believe I blogged so much about the Tories, though this is probably boosted by my focus on Fidelity. I also really ought to include an 'ownership' label, given that it's such a regular topic.

By the way, it looks like Going Private is finishing in its current form. It's a shame as it's a well-written and interesting finance blog. I like it a lot, even though I'm not on the same page politically. She has promised a new project with a different slant, so will be interesting to see which direction this goes in.

PS. does anyone know how to fix the volume control on a baby? Ours seems to be stuck on the maximum setting.

Pesto - UK institutions are hypocrites

This baby business really isn't leaving much time for blogging (or anything else). But I did spot this piece from Pesto which is worth a read -

Are there greater hypocrites in the world than British institutional investors?
These days, they bellyache about the excessive risks that were being run by big companies in the boom years.
They've put irresistible pressure on banks to raise regulatory capital and on other big companies to pay down debt.
Which is fine and dandy but long overdue - a closing of stable doors after more or less every horse has galloped over the horizon.
Lest we forget, it was these same shareholders who less than two years ago were putting extreme pressure on companies to gear up, to increase borrowings, to take advantage of the availability of cheap plentiful debt for takeovers and to finance buybacks of shares.

If this view of recent history (ie that institutional investors effectively cheered the banks on) is broadly correct then let's hope that the Govt's review of bank governance takes a proper look at these issues. Fund managers get paid a decent wedge to invest our savings effectively and - supposedly - engage with investee companies when things aren't going to plan. If we can't rely on them to do these things properly, what are we actually paying for?

Polly attacks the TPA

A good piece by Polly Toynbee on the libertarian righties at the the Higher Rate TaxAvoiders' Alliance. As she says, the Other TPA is much more sensible... :-)

PS. how about this for a bit of deviousness from the TPA on pensions 'apartheid':

If you want more on the scale of the divide you can read our report (PDF) on public sector pensions or the Institute of Directors' recent report (PDF).

Quoting the IoD report as if it strengthens the TPA's position is really weak, given that the IoD report was written by someone who worked, until very recently, at the TPA. Desperate!

Government review of bank governance

This looks interesting. Unfortunately Walker's previous review of private equity ducked a few key questions, attribution analysis for example. Hopefully, especially given the environment, this will be a serious bit of work.

The terms of reference for the review are:

* To examine corporate governance in the UK banking industry and make recommendations, including in the following areas:
* the effectiveness of risk management at board level, including the incentives in remuneration policy to manage risk effectively;
* the balance of skills, experience and independence required on the boards of UK banking institutions;
* the effectiveness of board practices and the performance of audit, risk, remuneration and nomination committees;
* the role of institutional shareholders in engaging effectively with companies and monitoring of boards; and
* whether the UK approach is consistent with international practice and how national and international best practice can be promulgated;

Nice quote from Myners too (on on of my fave topics!):
“Boards are effective only when held to account by vigorous and alert owners who devote the time and effort needed for engagement. This review is the first step in generating renewed commitment from institutional shareholders.”
Let's not forget Myners has already expressed a bit of scepticism about how engaged the 'owners' are, so hopefully he will make sure the review has a proper look at these issues.

snippets

Nice piece from Simon Caulkin today. Here's a key bit:

At the heart of the pay spiral is governance, in the shape of the disastrous "agency" doctrine that demands the "alignment" of managers with shareholder interests through monetary incentives. Agency theory is management's very own Ponzi scheme. It is a self-reinforcing enrichment device for top managers and privileged shareholders who, in unholy alliance, have combined to loot the company at the expense of employees, customers and, as we now know, society as a whole.

I think this is 50% right. I think agency theory as applied to executive pay has been a disaster, and it has resulted in directors getting ever greater rewards regardless of performance. But how have shareholders looted the the company? Surely the ever increasing waste of resources that is exec remuneration comes at the expense of both employees and shareholders, who are often the same people in any case.

There's a nice puff piece for Hermes in the Observer too today it says:

Hermes claims to be one of the few pension funds to have questioned Britain's bankers over their exposure to credit derivatives and other risky investments in the run-up to the credit crunch. Melvin said he had campaigned for several years to persuade investors that their interests were not served by their agents and advisers in the City. But the boom in share prices and property values, which was fuelled by a frenzy of transactions, had drowned out his protests.

I think Hermes are a good outfit, but I had to go and check their voting record. During the 2007 UK AGM season they appear to have voted against only one resolution at one bank - remuneration at RBS. So that includes the likes of B&B and Northern Crock. They also OKed the RBS ABN Amro deal. I accept that voting is only part of the story of course, but just thought I'd point this out ;-)

Final Observer bit. Does Ruth Sutherland think Peter Drucker is still alive?

As Peter Drucker, the management writer, has argued, that ratio ought to be brought right back down - he suggests to the region of 20:1 or 25:1.

I don't think he 'suggests' it any more, unless it's the way he's lying or something.

Nice S&M bit on the VAT cut. Pretty much my view of it. I don't see how you can argue that it has 'failed' without being able to know what would have happened otherwise. No two ways about it the cut means that the punters can buy a little bit more. Maybe they have.

Not much blogging for a bit

This parenthood bit is even better than I expected. I'm blissed out :-)

Powdrill 2.0 released

= I'm a dad. Another soldier in the army of labour...!

Two pensions reports

The IoD have put out a report (PDF) calling for an attack on public sector workers' pensions. It's been written by Corin Taylor, formerly of the Higher Rate TaxAvoiders' Alliance.

Meanwhile the Marathon Club has put out a report (PDF) on 'responsible ownership for the long term'.

An alternative model of exec pay restraint

Just tell them how much they can earn -

The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.

Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.

Greenspan on shareholders, governance and pay

From Age of Turbulence:

Over the decades governmemnt agencies and various interst groups have pressed institutional investors, especialy pension funds, to vote their shares in a manner that would resurrect the "corporate democracy" of earlier decades. But these institutions argue that their responsibility to their pensioners is to invest profitably, and that their expertise is in judging financial market value, not in the alien practice of corporate management. Some public pension funds have become more engaged, but their activities are marginal.

So, shareholders as owners is a bit of a myth, and:

...if the owners are no longer the managers, CEO control and the authoritarianism it breeds are probably the only way to run an enterprise successfully. There do not appear to credible alternatives to placing the power of governance in the hands of the CEO...

It's a coherent view, even if we don't accept it. But then why say a bit earlier:

I hope shareholders will look beyond their focus on investment returns and pay attention to CEO compensation. If compensation is inappropriate, it is their pockets that are being picked. There is no role here for government wage control.

This is what makes me cycnical about those on the Right who argue that exec pay is purely a matter for companies and shareholders. Greenspan even acknowledges that the shareholder-ownership function doen't work properly, and that CEO inevitably must have the whip hand. But then he argues that shareholders are the ones to ensure that CEOs don't loot the company. Eh? It looks like suggesting a remedy that you know doesn't work.

TaxAvoiders' Alliance

Just spotted this. Rather amooosing.

Bits and pieces

1. A couple of TUC docs worth checking out. The latest issue of the trustee newsletter (PDF), plus a useful guide to investor engagement.

2. There's an interesting piece on page 3 of the companies and markets section of the FT on one of my favourite themes - the role of shareholders in corporate governance. I suspect this will be one of the big issues that needs to be thrashed out in the wake of the banking crisis.

3. Barclays is still in trouble, despite last week's rally. One to keep a close eye on.

4. Minsky quote of the day... "[Banking]... is a disruptive forces that tends to induce and amplify instability even as it is an essential factor if investment and economic growth are to be financed."

Select committee stuff - stock-lending

Following on from my previous post, here are some bits and pieces from the ISLA's submission to the committee's inquiry into the banking crisis. I have to say I find the ISLA's stuff really interesting reading, even if I don't agree with some of what they come out with. The text below is from this doc - pages 48 onwards.

Executive summary:

• In general, share prices are driven by changes in the underlying fundamentals of companies and not by the actions of particular groups of buyers and sellers.
• Short selling did not cause the falls in bank share prices since 2007.
• UK financial share prices have continued to fall and remained volatile following the imposition of restrictions on short selling by the Financial Services Authority in September. Independent academic research has found that the restrictions in the United Kingdom and elsewhere have had no discernible effect on subsequent movements in the prices of financial shares.
• But, based on research by the London Stock Exchange, those restrictions have reduced liquidity in the market for financial shares and raised trading costs for investors.
• They have also constrained the ability of investors to hedge their positions and led to significant compliance costs for market participants.
• ISLA welcomes the planned consultation by the Financial Services Authority on regulations for short selling. Any new regulations should be linked to clear regulatory objectives, follow full and open consultation, be evidence-based, have a sound legal basis and be subject to rigorous cost: benefit analysis, as required under the Financial Services and Markets Act 2000.
• ISLA also welcomes the initiatives by IOSCO and CESR to harmonise regulation of short selling internationally, as differing rules create confusion and compliance costs for market participants.

From a bit further in:

Short selling and share prices

4. Academic research has shown that restrictions on short selling reduce market efficiency and liquidity. Studies have found that allowing short selling:

• means prices adjust more quickly to new information about fundamentals;

• decreases the likelihood of price bubbles;

• leaves unchanged or even reduces the probability of price crashes;

• may lead to higher equilibrium prices: because investors have greater confidence that prices are fair and therefore require lower returns to compensate them for risk.

And about the Cass paper I've mentioned previously:

8. The main findings were:

• No strong evidence that restrictions on short selling changed the behaviour of stock returns. Stocks subject to the restrictions behaved very similarly both to how they behaved before their imposition and to how stocks not subject to the restrictions behaved.

• Comparing behaviour across countries where the nature of the restrictions differed, no systematic patterns consistent with the expected effect of the new regulations, i.e. no evidence of a reduced probability of large price falls.

• No sign of any detrimental impact of the constraints in terms of reduced efficiency of pricing.

• Regression analysis suggested that changes in stock returns were driven mainly by other factors affecting the financial sector as a whole rather than the restrictions on short selling. That is, some systematic changes in the behaviour of financial sector stocks could be discerned, but no strong evidence of a systematic impact of the restrictions could be identified.

Just one obvious point, two of the bits of evidence submitted appear to contradict each other. This -

Academic research has shown that restrictions on short selling reduce market efficiency and liquidity.

And this -

No sign of any detrimental impact of the constraints in terms of reduced efficiency of pricing.

I really can't get my head around this efficiency argument (which is why I'm not surprised that the Cass paper found no evidence of 'inefficiency' as a result of the ban). I'm sure there is a certain level of liquidity required in order for price formation to be broadly 'efficient' but I can't believe that long-standing equity markets like the UK's don't already have this, and that we therefore need short-selling in order to facilitate it. There's something else lurking at the back of my mind that bothers me about this efficiency argument that I can't quite articulate yet. I'll come back to it.

In the meantime if anyone has any thoughts on this one - particularly making the efficiency case - I'm all ears.

More on UKFI

The Grauniad has a few details about UKFI, the Treasury's asset management arm.

This week the government is also expected to publish the formal terms of engagement for UKFI, which is intended to operate at arm's length from the Treasury.

UKFI is expected to make it clear that it will exercise its votes at annual general meetings and wants to ensure that big City institutions - whose power has been reduced by the taxpayers' involvement - also continue to try to influence debate by casting their votes too.

The body is also thought to have conducted an audit on how the bailed-out banks are performing in relation to the government's demand that they continue to lend to housebuyers and small businesses at 2007 levels. That progress report may also be published shortly.

Presumably UKFI will also make public how it votes, though inevitably it's going to be pro-management.

The appointments to the Lloyds board, also in the Grauniad piece, are also interesting. One of them is former Hermes chief Tony Watson, who has said a lot of very sensible stuff over the years.

Do I win a prize?

I got into work by about 8.50 this morning (mind you, I left the house at 7.15). I feel part of an important new minority - The People Who Made It Into Work In London.

Also maybe this incredible event means that I should call P Junior (due imminently) something like 'Snow'? or Hoth?

Fascist language games

There is a (as Paulie says) very stoopid debate about whether the BNP are right or left wing going on in the blogosphere. I've got a very trad lefty view on this, but I also think it's a pretty pointless debate because it's ultimate a dispute about categorisation more than anything else. Anyway...

Iain Dale argues that the Nazis were called "National Socialists" for a reason. I agree, but for entirely different reasons. Even a quick read of the Nazis' actual history would suggest that they used the socialist label more as a marketing tool than an ideology. Famously the Strasserite wing of the party - which did take the socialism bit a little seriously - was pretty much wiped out in the Knight of Long Knives. So personally I think the Nazis' "socialism' was there because it was designed to appeal to a certain cohort of voters, but had little meaning in practice.

Generally we shouldn't read too much into how political parties and movements name themselves. If we did, as other have pointed out, this presumably means that the Liberal Democrats in the UK and Russia share similar views of the world. It also suggests that the Austrian Freedom Party (I'll be coming back to these guys right at the end) are libertarians, and presumably the NuLabor Third Way shares common ground with that articulated by some of the BNP's hangers on. (Actually there's a great line from Orwell where he talks about the mistakenly literal use of political labels. He's specifically talking about anarchism and he says "us[ing] 'Anarchism' indifferently with 'anarchy'... is a hardly more correct use of words than saying that a Conservative is one who makes jam.")

Another point Iain Dale and some Righties make is that the Nazis shared some key policies with the Left - trade tariffs, nationalisation of certain industries etc. That's true, but as Dave Osler has pointed out in practice the implementation was very different. But I would make the broader point that if adherence to these types of policies makes a party "left-wing" then many mainstream political parties of Right and Left have been left-wing. And what about today? Presumably the Tories are currently a bit left-wing because they support nationalisation of certain banks for now. Follow that through and I guess they must revert to being right-wing once they decide it is time for the Govt to sell its stake in the banks. This shows that actually policy positions - even big ones like favouring public ownership of banks - don't tell us everything. The ideas behind the policy matter too.

This also tells us why this is such a stoopid debate. If you define someone's politics by the means that they advocate to achieve their ends then you will end up with one view of how political parties are aligned. If you define them by their objectives then you end up with with an entirely different perspective. Your method of categorisation defines your answer. To me the objectives of political organisations do matter. From my reading of it the Nazis believed that there were inherent differences in the races that meant that society inevitably would be (and should be) stratified. For me that is incompatible with being a lefty, since we view inequalities as very much challengeable. But that's just my system of categorisation.

I had a similar exprience arguing with a bloke whose view was that all 'real' muslims were the fanatical, scary ones, because the soft and cuddly ones hadn't read (or understood) the Koran properly. So all muslims were scary fundamentalists because only scary fundamentalist could be 'proper' muslims. So I couldn't make the point to him that my friends and acquaintances who were muslims weren't fundies, because to him that had no meaning - they couldn't be muslims in the first place. (Another version of this is of course the Trot view of 'communism' as practiced in the USSR etc).

So personally I think trying to 'win' this 'Nazis are lefties' debate is pointless because ultimately no side has an obligation to accept the any other's taxonomy. And if we don't share the same categorisation system inevitably we will end up with different answers from the same info. And of course each side picks the catergorisation system that is most accurate, and it's just a fluke that the system adopted by the Right defines the Nazis as lefties and vice versa...

PS. In practical terms the the overlap of membership has always been between the BNP (or NF before them) and the Tories, not Labour. When they have been in a position to take power, whether in Germany in the 30s, in Italy up to the present day, or Austria in 2000, fascists and their offspring have repeated allied with the Right, not Left. If fascists are really lefties this alignment is puzzling innit?