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Brexit, betting markets and the pundit premium

Strike Brexit up as another failure of prediction markets. But empirical studies show that betting markets are, on average, good predictors. In this post, I will hypothesise a specific category of instances in which markets systemically fail as predictors, with reference to my own bets.

Over the past year, I’ve found my intuitions consistently running against mainstream pundit opinion. Rather than just rant on Twitter, I decided to test my views on the market, embracing contrarianism for fun and profit.

I agree with Nassim Taleb that the only way to identify a genuine belief is to have skin in the game. Otherwise, predictions might be strategic, an attempt to create momentum for a preferred candidate. Or they might be currying favour with bosses and very serious people (VSPs) by saying what they want to hear. Or they could be a cheap effort to look smart despite having no real knowledge or expertise. Finally, they might be nothing more than pure entertainment. Most punditry falls into the last two of these categories.

Over the past year, I have decided to bet on four events that have now passed:

  • Corbyn’s leadership win
  • Turnbull’s leadership win (against markets at the time)
  • Trump’s nomination
  • Brexit

All of these were against markets, most were against pundit consensus (except Turnbull), but all were correct. In addition, I consistently predicted a Hillary Clinton win by a far more modest margin than pundits and popular prediction models suggested early on. I would have bet on this, if there had have been a convenient way to bet on winning margins.

I have two outstanding bets:

  • Australian Labor Party election victory
  • Trump general election victory.

No matter what happens on the remaining bets, I will still have made a large profit. I made no other bets during this time. The only other formal bet I have ever made was a late bet in favour of Gillard in Rudd’s final leadership challenge. That lost, but it was a long-odds bet.

Prior to embracing skin in the game, I made two other big contrarian calls. I predicted that the Liberal Party would be competitive in the 2010 election if they replaced Turnbull with Abbott. This was because he would be best placed to mount a brutal cost of living scare campaign on carbon pricing. That opinion ran against the wisdom not only of betting markets but virtually all the press gallery and senior political insiders. It turned out bang on.

My second non-financial call was the absurdity of statements like “Labor can’t win for three elections/a decade” etc after the 2013 election loss. In less than three years, Labor is already competitive. It surprises me that otherwise intelligent people continue to fall for such short-term emotive reactions against historical evidence. Two weeks is a long time in politics. It only took Labor eight years to win after the Whitlam dismissal, which was a defeat vastly worse defeat of a vastly more reviled government than Rudd-Gillard-Rudd.

My intention is not to boast, but to show that my opinions here are not just idle words. They are my genuine beliefs and I have had success based on these beliefs.

The common denominator in my predictions (except for Turnbull’s latest win) is that they ran against the “respectable” thinking. They clashed with the “serious” people.

When folks come up and ask me the secret of my success, I answer “well, you see, I look at the polls”. Actually no one asks me this, but that’s a good line when they do.

Seriously, though, my method is to identify when pundit consensus and “serious opinion” contradict long-term poll results. If the markets also contract the polling, it suggests what I will call a “pundit premium” is at work.

My hypothesis is that prediction markets are distorted by interrelating factors:

  • a status quo bias against radical change
  • a “respectable” policy bias (or an anti-populist bias)
  • a “preferred outcome of elites” bias, and
  • a herd bias.

The pundit premium is due to perverse incentives facing investing agents. If an investment goes pear-shaped, there is always the herd defence: “but all the serious, expert people said the same – clearly it cannot be my fault!” But if a contrarian investment is off, there is no such recourse. You’re just a crank. The investment was outlandish and irresponsible. Your bank will fire you and your clients will drop you, shunning you at cocktail parties.

This creates a powerful incentive to follow the ‘respectable’ line. In effect, you pay a “pundit premium”, which buys insurance against reputational damage. This will distort market prices compared to true probability.

On only this specific category of instances is it advisable to go against the markets. These instances are usually rare, but they are becoming more common. This is because we have entered a period of populist revolt against elites.

All over the world, unexpected departures from VSP consensus are becoming run of the mill. Some of these departures are good, some bad, and some down-right ugly.

But for all the bad, there is at least a silver lining. It is twilight of the pundits.

Forget the pundits, budget papers show Coalition – not Labor – wrecked the budget

What’s fascinating about mainstream budget punditry is that it’s essentially a fact-free zone. This is ironic, because it is one area of public policy where data is straightforward and readily available.

What cannot be disputed is that under the Coalition the deficit has blown out from $30.1 billion to $40.0 billion. Net debt has increased from $184.0 billion to $285.8 billion, gross debt from $325.5 billion to $477.0 billion.

As the budget papers show, this cannot be blamed solely on the sluggish economy. The Coalition’s policy decisions sent the budget further into the red. By contrast, decisions in Labor’s last term actually reduced the deficit. By any objective criterion, it is the Coalition who should be under interrogation over the budget.

But rather than opening the budget papers, pundits take their cue from prevailing wisdoms and gut instincts, aka the vibe of it. The dominating vibe is the so-called ‘daddy’ versus ‘mummy’ party divide. As the ‘mummy’, Labor thrives at ‘soft’ things, such as health, education. As the ‘daddy’, the Coalition leads on ‘hard’ things (being firm with finances, protecting us from baddies, etc). By some inexplicable psychological inference, pundits assume the converse to be true as well. Labor people are warm and fuzzy, so they must be bad at money. This does not actually follow, of course, but it’s the vibe. One could unpack the ideologies behind this reasoning but that is not my goal here.

For the pundit, the vibe seems to be confirmed by businesses support for Coalition economic policy. Pundits think the economy = business, because both share a money vibe. But business people are neither public economists nor impartial observers. On average they are relatively wealthy, especially those who work on financial matters and who have access to journalists. They stand to win from Coalition policy, so they back it in. Moreover, those who call the shots in media companies are themselves upper income managers.

These structural biases mean that Labor faces an uphill battle on economics. Pundits presume Labor to be wrong, until proven right.

Just today in the Australian Nikki Savva casually declares that “Labor’s costings don’t add up”. On what basis? Has she seen the costings?  Has she undertaken costings herself?

Nope, no basis needed. The Coalition told her so. And it rings true because everyone knows Labor is terrible with money. This is stock-standard practice for what passes as economic “journalism” in Australia.

It gets better. The Australian’s official newspaper opinion column asserted :

It is hardly surprising a Coalition intent on exposing Labor’s spendthrift policies and habits would use the highest possible figure, based on the most generous opposition rhetoric and promises it could find. Perish the thought that politics might intrude on an election campaign. We all know the jousting at play here. But the onus is on Labor to say which promises it will honour, which cuts it will no longer oppose and which savings measures it may assist through the Senate.

This single paragraph illustrates the hilarious extent of the punditry’s double standard. The Treasurer made a specific claim that Labor has a $67 billion black hole. Within a day, more than $30 billion of errors were identified in his calculation. Humiliating. But the Australian is sympathetic to a $30 billion error when it is a political strategy against the dirty socialists. That’s a black hole they can get behind. Sometimes the only way to beat the terrorists is to fight dirty, you know.

Notwithstanding this gross error, the “onus” remains on Labor. It’s Labor’s responsibility to continue to disprove a made-up number. Such is the presumption of Labor’s economic guilt.

So much for the punditry. Let’s venture out of this parallel universe and into the real world for a moment. As I previously argued, there is a simple indicator of a government’s fiscal discipline. Sum the budget impact of a government’s policy decisions, over four years, as published in the budget papers. This has the advantage of removing the impact of economic conditions outside the government’s control, such as change in terms of trade.

The figures are telling:

updated budget 2

(See here for the underlying data.)

John Howard’s term from 2004 to 2007 was by far the worst, costing the budget a whopping $202.2 billion. This is consistent with research from the IMF, which identified him as the most profligate Australian Prime Minister in recent decades.

Policy decisions in Labor’s second term actually reduced deficits by $45.7 billion. The Abbott/Turnbull Coalition government has abandoned this rectitude, increasing deficits by $17.8 billion.

So much for the vibe.

The sum of four-year estimates is by no means a perfect indicator. In particular, it does not capture the long-term budget position. But it is a reasonable starting point for estimating how much governments contributed to the surpluses or deficits during their time in office. That is the focus of much of the public debate.

The presumption of budget guilt should clearly be on the Coalition.

Gamblers should have the freedom to choose constraints

The community should enable gamblers to set, in advance, hard limits on the amount they bet.

Walk into a NSW pub or club at any given time, on any given day, and you will witness tragedy. You will find people with bodies hunched into pokie machines, empty faces gazing zombie-look into a whirl of colour.

Some of the gamblers are in control, only having fun. But some are miserable addicts; pouring their family’s livelihood down the drain.

It is hard to understand how our society considers it acceptable to actively facilitate and profit off such pathological self-destruction. It hurts not only the addicts themselves, but their families as well.

Few in the community would support dealers profiting off heroin addicts. Why is the principle different for gambling?

Putting aside innocent families, it might be argued that gamblers should be allowed to destroy themselves due to a principle of self-determination.

This viewpoint is increasingly hard to reconcile with empirical research from psychology and economics.

Traditionally neo-classical economists have assumed that an individual generally behaves as a unified subject who rationally maximises consistent and stable preferences. That implies a faith in our moment-to-moment choices. The famed micro-theorist Gary Becker even developed a model of “rational addiction”.

But decades of empirical work has shown that in many domains our choices in fact do not follow a consistency that is traditionally considered a minimum threshold for ‘rationality’.

Rather we display “hyperbolic discounting” – that is, placing a disproportionate emphasis on immediate pleasure over future welfare. For example, someone who chooses to wait 365 weeks for $120 rather than 364 weeks for $100, might make the reverse decision if it’s a choice between next week and this week. There is something seductive about receiving a reward right now, which distorts our usual preferences for patience. Thus our own choices about time and money are internally inconsistent.

A related area of research has shown how choices change depending on whether they are made in “hot” or “cold” psychological states. For example, in an addict’s calm reflective moments, they may have a genuine determination to quit. Their ‘cool’ long-term-focused self wants to rein sovereign over their ‘hot’, impulsive self.

This is not just cheap talk. They demonstrate willingness to pay, investing time and money into therapy and rehabilitation. And yet… in a moment of weakness the same person will go and get smack.

One way economists are conceptualising this internal inconsistency is to assume multiple ‘selves’, pulling individuals in different directions (for example here).

This leaves an obvious question. Which ‘self’ should public policy take as the authority for purposes of maximising self-determination? The ‘cool’ self with its eye on long-term wellbeing, or the ‘hot’ absorbed in its immediate impulses? We have to choose.

I would argue we should empower our calmer, more considered selves.

Applying this to gambling would enable gamblers to impose, in advance, a cap on the amount they bet each year.

To achieve this, the government could issue cards to everyone in the community who wants to gamble. Each card-holder would be given the option of setting an annual limit. If they choose to do so, they can lower the limit at any time, but not increase it. Gambling organisations would only be permitted to accept bets from those with a card (although card holders can elect not to have a limit). All card holders would see their yearly spending total at the start of each gambling session.

Ideally, this policy would be funded through cost-recovery arrangements levied on the gambling industry. Alternatively – if we wanted to be more libertarian – it could be recovered through fees on those who elect to use the cap facility. That way it wouldn’t financially affect anyone except the individuals who make a choice to use the service.

Given that this policy expands an individual’s choice set, even a dogmatic individualist would have a tough time mounting a coherent argument against it.

Privileging the long-term self over the short-term self has obvious moral and practical benefits. Free market liberalism, however, does the opposite.

The free market liberal model worked pretty well for a long time. But as our societies become wealthier, and as technology is allowing us to satisfy whims 24/7, our major social problems are increasingly caused by too much consumption as much as too little consumption.

Think of the major emerging health challenges – diabetes, obesity, drug and alcohol addiction – these are all related to impulsive consumption of temptation goods. One of the major demographics in the USA is experiencing an unprecedented decline in longevity due mostly to these temptations.

Only an expanded model of self-determination can address the growing gulf between spontaneous behaviour and what individuals really want for themselves. In this environment, maybe it will be the government – rather than the market – that will play the key role in expanding individuals’ capacity to self-actualise, to be who they truly want to be.

Confiscate half the income of all anti-vaxers (not just the poor)

Current penalties for non-immunisation are an imposing threat to the poor but completely fail to address shockingly low rates of vaccination in wealthy communities.

Since 2014, parents who do not vaccinate their kids lose eligibility for Family Tax Benefit A. This was a highly popular policy and supported by both major parties.

Losing FTB A is a big deal for poor families. For example, FTB A makes up around $21,000 of the $39,000 of assistance to an unemployed single mum with three kids. So the most vulnerable members of the community stand to lose around 54 per cent of their income.

But if you want to find immunisation shirkers, you look to the wealthy. Vaccination rates are inversely correlated with income. The wealthiest suburbs in Sydney like Mosman and Bondi have some of the lowest vaccination rates in the country. These people don’t care about FTB A, because they don’t receive it.

The obvious solution is to apply painful income disincentives consistently across the community. The government should therefore confiscate 50% of the total disposable income of all Australian families who do not vaccinate their children, regardless of wealth.

So a family in Mosman with a household disposable income of $250,000 would be fined $125,000 each year. Assuming this family has at least one child aged under 18 for a total of 25 years, they would pay $3.125 million. This might sound harsh, but it is proportionate to the penalty on the poorest and most vulnerable in the community.

The public health arguments are identical for both. The case is in fact stronger for families in Mosman and Bondi than most other areas because herd immunity is more at risk there. Blue collar areas like Campbelltown, where our hypothetical single mum lives, have the nation’s best vaccination rates.

Perversely, a consistent income disincentive would be more controversial than the inconsistent one currently imposed. Perhaps the stated justification of public health is really only half the story. The other half is a conservative morality tale. It’s the idea that whereas market income is a right, social security is a privilege. It’s a charity service conditional on ‘deserving’ behaviour.

But for a social democrat the entitlement claims are surely the reverse. Poor kids have a right to a decent relative standard of living, but the wealthy do not have the right to all of their labor and investment income. The latter is inherent in the principle of progressive taxation.

We could argue competing fairness claims all day, but this is irrelevant to protecting kids from diseases. As Matt Bruenig has argued, those who promote punitive income-confiscating interventions love to target social security, but there is no coherent justification for distinguishing between income sources when promoting good behaviour. The notion that infectious diseases care about social dollars but not market dollars is obviously absurd.

A fifty percent income cut is a tough penalty. I thought it was on the harsh side, but society has spoken. The penalty must be applied to all – rich and poor alike.

May the force Bern with you: Economic justice and the future of the American left

sanders obi wan

In a recent post, I argued that economic justice should become central to the policy platform of the American centre-left.

A comment from Su-Min contained a thoughtful critique of the post, and it provides a good opportunity to clarify my position. Su-Min’s first question is whether my argument was based on political pragmatism or morality.

When you say ‘Only economic justice can save progressive politics’, I interpret that as you arguing either that:

  1. a) There is a causal relationship between economic inequality, and other socially progressive causes (race, gender, sexuality); or
  2. b) Alleviating economic inequality is *more important* than these other socially progressive causes.

I don’t think either of these premises is exactly *wrong*, but I don’t think they’re *right*, either, and it’s worth unpacking why that is.

In answer, my argument was based on political pragmatism. There is no general, intrinsic moral priority of alleviating economic injustice over any other injustice.1) Rather, economic justice is a way to incorporate poor and blue collar voters into a centre-left coalition.

Su-Min was sceptical that tackling inequality would lead socially conservative low-income voters – such as Eric Harwood from my post – to change their social beliefs. I don’t believe it would either, at least in a direct way.2) However, a platform of economic fairness gives Eric Harwood a financial incentive to vote for the left and a stake in the identity of the left to compete with his other identities: religious, white, male.

This is not just conjecture. Working class voters are more likely to vote for a centre-left party with strong industrial and class links – something shown in empirical papers here, here and here. It would be ideal if guys like Eric Harwood changed their social views, but progressives really just need their vote.

The US Democrats – more so than other Anglophone centre-left parties – struggle with blue collar whites. This is partly because they lack the industrial and class ties of parties like UK Labour and the Australian Labor Party. Until recent years, inequality-related themes were virtually banished from Democrat rhetoric and policy.

There is great potential for picking up Republican voters by appealing to economic fairness. Republican voters are far more left-wing on economics that the Republican leaders – or even the Democrat establishment:

  • 62% of Republicans support a single payer health care system,
  • 53% of Republicans support raising taxes on the rich,
  • 55% of Republicans support a government jobs guarantee for unemployed workers
  • 57% of Republicans support higher minimum wages for tipped workers.

The secret of Donald Trump’s rise is speaking to these Republicans. That’s why his support base is with self-identifying “moderate Republicans”, and why he is weakest with “very conservative Republicans”. That’s why he is pulling lower income Democrats. It’s also why head to head polling by income group reveals a significant number of poor Americans who will either vote Sanders or Republican, but not Clinton.

Elite Democrats have failed to win over to economically left-wing Republicans because they are out of touch with mainstream America. A recent set of economic experiments found that Democrat students at Yale Law School – prime demographics for future Democrat establishment elites – were overwhelmingly more selfish and less egalitarian than average Americans. So the Democrat establishment’s disinterest in economic justice seems to be grounded in personal beliefs, rather than merely being a mistaken political strategy. It’s hard then to see how things will change without a transformation of the establishment.

Bernie Sanders’ great contribution has been to start a movement for reform in Democratic politics. Even though his chances of nomination are slim, in a sense he has already won. His challenge has pulled Clinton left, and shifted public discourse towards class politics.

For decades it has been assumed that an explicitly social democratic agenda was radically, hopelessly removed from appealing to mainstream America. By showing there’s plenty of mainstream appeal, Sanders has opened the Overton Window to economic justice.

As Obi Wan Kenobi said, “You can’t win, Vader. If you strike me down, I shall become more powerful than you can possibly imagine.” Force ghost Sanders will live on in the new generation of young Democratic activists that he has mobilised and inspired, pointing the way to a fairer future for America.

Footnotes

1) Although there are USA-specific reasons why addressing economic inequality has particular moral urgency. From 1996 to 2011, the number of American families living on less than $2 income per person per day has more than doubled from 636,000 to 1.5 million, including three million children. This kind of deep poverty is rare in comparable rich countries, and it’s hard to think of a statistic in other areas of American social justice that has so deteriorated so badly (maybe you know of some).

2) But there is also a subtle, indirect way that economic justice does change actual attitudes, or at least the intensity of attitudes. In Timmer and Wilson‘s analysis of immigration in US, Canada, Argentina, Australia and Brazil from 1850 to 1930, they found that economic inequality was most strongly associated with the establishment of immigration restrictions. A sad truth is that angry people often lash out, even at the innocent.

Only economic justice can save progressive politics

I just came across an excellent post by Matt Bruenig that, through an empathetic portrait of a poor man who supported Trump and Cruz, skilfully brought together the reasons why economic inequality must be at the centre of progressive politics.

Bruenig came across Eric Harwood on Twitter, when the latter spoke about feeling abandoned by the American safety net. Harwood had worked his whole life, but developed a serious physical disability. He was reaching the time limit of all available welfare programs and despaired about looming homelessness. He could not understand how despite having done all the right things – been a hardworking, loyal American – he could be thrown out on the scrap heap. There are millions of stories like this. It’s part of an extraordinary trend in the USA where life expectancy for middle aged whites is decreasing, mostly due to suicide, alcohol and drugs.

I recommend you read Bruenig‘s post in full, but here’s an except:

When asked what his main issues are, he talked at length about the bank bailout. In his view, the bailout was an incredible mistake. The money that went to the banks should have been given out to the people more generally, who then could have used it to pay off their loans (and thus save the banks) and to pump up demand more generally. He explained further that the bank bailout is just one part of a broader problem with the way the government spends money. Specifically, he thinks it spends too much money on foreign aid, refugees, and immigrants, when it should be spending it on struggling veterans, seniors, needy children, and those who cannot work. He also confirmed that he is, at least in some respects, a social conservative and that he believes abortion is murder. In the 2016 campaign, he says he wants a Trump and Cruz ticket and he doesn’t care who leads it.

Altogether, Harwood struck me as a basically kind and decent man. He’s been economically wrecked by so many of the trends that have hit working-class people in the country over the last few decades. He lost his home in the Great Recession. He has had lower-paying work for much of his life. And now he has a work-limiting disability that may soon cause him to become, in effect, homeless. He has experienced his latest setback as an abandonment of him by society and government institutions: he contributed in the labor force for 31 years and yet he can’t get the social benefits he is justly owed.

His concern about foreign aid, immigrants, and refugees, though misguided in my opinion, has a very clear connection to his economic situation. Put bluntly, he wonders why his country can somehow help these people while he drowns. In the grand scheme of things, the reality is that the US does not spend that much of its GDP on foreign aid, refugees, and immigrants. The reason there are so many poor veterans, elderly, children, and disabled (the four populations Harwood kept bringing up) is not because the government doesn’t have the means to help these groups. It just chooses not to for various ideological reasons. This is something I know because I spend most of my waking hours studying the shape of government spending and the US welfare state. But you could certainly see how someone like Eric Harwood might think otherwise.

The erosion of the American safety net has undoubtedly contributed to the populist right-wing backlash.  Impoverished people, lacking education and access to the political system, are looking for simple answers to their woes. And they have rich, successful people who will confidently tell them who to blame. A growing immiserated under-class is a perfect storm for an reactionary backlash. That’s why economic protections are so vital to a socially progressive and free society. Social liberals should think about embracing a pro-equality economic agenda, if they aren’t already.

There are other compelling reasons for rebuilding fragile social protections. For a social democrat, of course, the restoration of the safety net is simply a moral principle. But for a rational capitalist, it is also an economic imperative. If we open up economy – embrace disruption – members of our community are exposed to more risk, even as there is a greater return to the economy as a whole. The rational response to such risk is good insurance. But instead of increasing social protections, most countries – the USA in particular – have weakened them. It’s no surprise, then, that we have a popular backlash against openness that threatens to undermine international trade and immigration.

Whatever you think of Bernie Sanders, you must admit his message is cutting through. His rhetoric is powerful because it redirects working class anger onto bankers, elites and greedy politicians. His punchy slogans give the afflicted a story with which they can make sense of their suffering. This is why he has a vastly larger political coalition – not just students, but also truck drivers – than the warm-lettuce lefties before him.

There is no agility without security. Morally, economically and politically: the case is overwhelming that frank discussion about class, inequality and the social compact must be the centerpiece of a successful centre-left agenda.

My disagreement with Hillary Clinton, and how I hope she’ll win me over

Despite impressive achievements, Hillary Clinton is grounded in an old style of politics that is ill-suited to the progressive strategy required in today’s America. This applies to both policy and politics. Clinton must transform her approach if she is to become the next President. Despite his hard left-wing politics, Sanders’ unexpectedly successful campaign provides some useful lessons for the future of a successful centre-left agenda.

My ideological disagreement with Hillary Clinton goes back to a series of policies she promoted in the 1990s that hurt the most disadvantaged Americans, in particularly vulnerable women and African Americans.

“Tough decisions” are not necessarily the right decisions. Experience is only advantageous if it demonstrates the desired attributes.

In particular, I object to Hillary Clinton’s personal advocacy of the Bill Clinton administration’s policy of throwing single mums off welfare. Whereas Australia reduced payments to single parents, Hillary Clinton supported throwing more than half of recipients off welfare altogether.

When the Bill Clinton administration abolished the Aid to Families with Dependent Children program, he truthfully declared it would “end welfare as we know it”. It was the first time in American history that any government repealed a section of the Social Security Act.

Following the implementation of this ‘reform’, the number of American households with incomes of less than $2 a day more than doubled to 1.6 million. Today millions of poor American women have stories like this:

Rosa Pena, a 24-year-old single mom in Arizona, told the New York Times “I’ll do what I have to do,” to stay alive, including sell the groceries she buys with food stamps. Other poor women the paper interviewed in 2012 said they sell clothes for extra cash or reluctantly move back in with violent boyfriends. “One woman said she sold her child’s Social Security number … ‘I tried to sell blood, but they told me I was anemic,’ she said.”

The women and children hurt by this policy were thrown were under the bus for centrist cred. They are the poorest Americans, and disproportionately the victims of domestic violence and racial injustice. Hillary Clinton called them “deadbeats”.

Sometimes I compare my life trajectory to that of hypothetical American David, from a similar single mum background. There’s a reasonable chance my family would have wound up on the streets. It’s unlikely that I would have been able to earn good degrees, excel academically and work in relatively high status jobs.

To be clear, I’m not suggesting Hillary Clinton designed the welfare crackdown. But she does have responsibility for the arguments and rhetoric she put forward in support of one of the cruellest American policies in decades. She still stands by the welfare crackdown.

In addition, Clinton advocated “tough on crime” legislation that contributed to the human disaster zone that is American mass incarceration. She remains pro-capital punishment. In the USA, these policies are deeply intertwined with racial oppression.

And then there was disastrously wrong position on the Iraq War. But this is only one of a string of foreign policy failures, driven by her consistent identification with hardline hawks in the US foreign policy establishment. No this is not the norm for a right-leaning Democrat. It’s to the right of the right. Foreign policy judgment is Clinton’s centrepiece claim on the Presidency. Some questions here are obvious and reasonable.

Finally, Clinton has been a long-time supporter of Wall Street, including their push for financial deregulation. After the financial sector blew up the global economy in 2008, the USA needs financial reregulation. It is entirely legitimate to scrutinise Clinton’s strong association with financial elite, particularly when they comprise her major donors and key policy advisers.

None of the above issues absolutely disqualify Clinton for the job. We should acknowledge her impressive list of achievements. In particular, she deserves our deepest respect for punching through the political glass ceiling at a time when that was an even harder feat than it is now. Furthermore, the policies criticised above were to some extent part of the Zeitgeist of the time. That is some defence for a moderate politician. As Gough Whitlam said, only the impotent are pure.

But no one is above answering respectful questions about their history and values. That’s the point about a democratic contest. Unfortunately the best alternative candidate – Elizabeth Warren – did not stand. Bernie Sanders is more left wing than ideal, but it’s nevertheless in the interest of centre-left democracy that he stood up to put forward the “other side”. The Sanders campaign, I expected, would lose the vote but succeed in nudging Clinton towards better policy.

All expectations were that Clinton would emerge as clearly the superior politician. A strong centre-left leader can unify their party behind a compelling progressive vision. They project a certain gravitas that can acknowledge and respect concerns even when not acceding to them.

Instead, associates and supporters of the Clinton camp, and Democratic establishment, have waged a campaign of smearing people with legitimate questions as naïve, stupid, crazy, sexist, racist and/or all of the above. Yet while the Clinton backers deride average Sanders’ supporters as BernieBros, her support among young women has fallen into a death spiral. Within a few months, her share of young women’s voting intentions has collapsed from a large majority to a clear minority. In Iowa, 86% of young women supported Sanders – stronger than the young male vote. A growing number of African American leaders have defected from past endorsements of Clinton and joined the Sanders’ camp.

The ferocious hatred of Bernie Sanders from the establishment is hard to explain. The reality is that Sanders has led a good, honest campaign. Knowing Clinton would likely be the nominee, he has largely avoided strong personal attacks that would damage her in a general election. He defended Clinton on the email controversy, one of her great political liabilities. That kind of team loyalty is all too rare in politics. At the same time, he has energised young people and brought new recruits into the Democrat fold. That’s a model campaign for an outsider, and he should be applauded for it.

My fear is that the Sanders bashing may reflect an elitist mentality within the Democrat establishment and punditocracy. How dare an outsider put their hat in the ring?! Doesn’t he realise Clinton is the ordained appointment of the Very Serious Persons?! The temerity! If this is an accurate assessment, it’s a sad time for the global centre-left. Our mass appeal has always been rooted in an egalitarian ethos.

My inner bleeding heart feels that the instinctive kicking of an underdog is related to status hierarchies and the unjust exclusion of outsiders. My inner economist thinks it’s about an insider clique protecting their monopoly power, inhibiting the benefits brought by vibrant competition.

The Clinton camp talks a lot about “electability”. While they keep talking about it, Clinton blew a lead of approximately 60 percentage points, with Clinton and Sanders now neck and neck. Sanders has won over iconic Clinton demographics like young women by huge margins. It’s time to face up to the empirical reality that Clinton has been overrated as a politician, and Sanders underrated.

The pundit class suffers from a delusion that “electability” is about a simple midpoint on a left-right spectrum. It’s far more complex. First, personality factors such as “likeability” are at least as important as ideology. Second, unlike Australia, the USA’s optional voting complicates the centrist privilege. Motivating the base to vote is as important as appealing to the median voter. Clinton is obviously struggling with youth. A serious risk for Clinton is that young Democrats will not turn out in a general election. Older voters are more reliable, so Sanders does not face an equivalent risk.

Third, the public do not have a stable, unified political ideology as pundits would understand it. That’s some David Brooks/Paul Kelly hot bullshit. Rather, punters have an inconsistent mishmash of vague beliefs, some of which come to the forefront depending on the prevailing public discourse and socio-economic conditions.

The pundits have been wrong over and over on this. When Tony Abbott became leader of the Australian Liberal Party, the near-universal wisdom among the Very Serious People was that his right-wing social views were “unelectable”. He was indeed more right-wing than most Australians, but he could prosecute a relentless case on issues that mattered to Australians at the time. Pundits made similar bloopers over Margaret Thatcher.

Political success requires an ability to reframe public conversation onto desirable agendas and to build new alliances. Both Sanders on the left and Trump on the right have shown extraordinary success in this regard. It’s loosened the Very Serious Persons’ gatekeeper control of public discourse, and that is why the punditocracy hates them so much.

Clinton cut her teeth in “third way” politics. This movement is the compact disc of centre-left politics: innovative and popular in the 1990s, but largely superseded today. Indeed, some third way policies may have brought about problems facing progressives today. In particular, increasing competition and cutting the social safety net made life harder for the working class. Since this time, there has been unprecedented fall in the longevity of middle aged white Americans. No wonder there is rage.

Centre-leftists must bring back some of the blue-collar whites that have been lost to the right. Sanders is onto something with his old school populist talk about inequality and financial regulation. Although somewhat lacking in nuance, Sanders tirades against bankers are a vastly preferable direction of working class anger than Trump’s tirades against immigrants.

Evidence is still preliminary, but Sanders appears to be cutting through with blue-collar Americans. He has demolished Clinton’s lead among Americans with “High School or some college” levels of education, and among those with incomes of less than $25,000. Data from Iowa showed a strong lead for Sanders among drivers of trucks and station wagons.  For a hard lefty, with staunchly socially progressive policies, this would be a remarkable achievement. Ponder this for a moment: Sanders’ base is shaping up as a unity of student liberals and truck drivers. That’s a holy grail left alliance that progressives across the world have been struggling to unite for decades. Maybe, just maybe, this guy actually has something going for him.

Despite Sanders’ strong performance, Clinton is still likely to win. Sanders is at a name recognition disadvantage in the southern states. Most of the super-delegates are locked in behind Clinton. The DNC is shamelessly rigging the contest.

If the Clinton campaign transforms its approach, it could benefit from the new recruits and energy that Sanders has brought to the party. Undoubtedly Sanders will be classy and throw his full support behind Clinton. Whether his supporters will follow depends on how Clinton plays her cards. The first obvious lesson for the Clinton camp is to stop relentlessly bashing Sanders with disingenuous attacks (see here, here, here, here). The Democrat base has seen through these old fashioned too-smart-by-half gimmicks. The attacks backfired, bringing Sanders wider attention and a surge in donations.

It’s also time to lose the tin ear, to stop derisively caricaturing Sanders’ supporters. Bashing the voters is mindbogglingly stupid. When people feel personally attacked, they tend to firm up their opposition to the attacker, and the attacker’s associates. That the supposed political geniuses in the Clinton campaign have failed to realise this elementary point is very concerning for their prospects in a general election. The Clinton camp must stop asserting her electability and start showing it.

Clinton should signal a clear break with policies of the past. She should incorporate some of Sanders’ economic populist rhetoric into her political toolkit and commit to rebuilding the social safety net.

Finally, the Democrat establishment must humble itself to acknowledge that maybe, just maybe, Sanders has discovered an important component of a winning electoral strategy. They should quit their transparent rule rigging, which so far has succeeded only in leaving left egg on their faces. Perceived illegitimacy in a Clinton win will destroy morale among Sanders supporters and push them away from the Democrats.

Hillary Clinton has the potential to be a great and unifying Democrat President. It’s time for her campaign to show it. Until then, I am feeling the Bern.