16th November 2011
Twenty-five years ago, student fees were so off the agenda that undergraduates would not have known how to argue the point. Only the fringe of the fringe would have dared put the idea forward. Today, it's accepted along with huge student debt.
Even 15 years ago, the concept of invading middle east countries that were not directly attacking the UK would have been met with derision – didn't the UK learn its lesson at Suez? The history of the past decade shows how that idea has changed.
Even ten years ago, arguing in favour of Britain joining the euro and signing up for a federal Europe would have been part of normal debate. Now it will mark you out as an economic oddball at best – a dangerous freak in many people's book.
These, and many other examples, show that ideas once seen as beyond challenge – the equivalent of the sun rising in the west – can rapidly become unacceptable, replaced by a new orthodoxy that equally appears to be set in stone.
For investors, and especially long term investors, the idea is vital to understanding markets. Concepts change over time so what was considered normal to one generation is seen as an aberration to the next. Students of Elliot Wave theory often justify their long wave (around 30 years) principle on the grounds that it is one generation to learn and the next to forget. Or what goes around, comes around.
Over the last decade, the automatic acceptance of the cult of the equity has taken a hard knock from bond fans. Once the superiority of the equity was written in stone – now, at best, it is written on flimsy paper.
This change in the reactions of the public and opinion formers to ideas current in politics, economics or other disciplines is known as the Overton Window. This is named after Joseph P Overton, of the Mackinac Center for Public Policy for Public Policy, a Michigan-based free market think tank. Overton died, aged 43, in an air crash in 2003, less than three months after marrying.
But he lived long enough to give his name to the concept that the focus along the continuum between total perceived normalcy and complete kookiness can and does move. Go back far enough in time and the concept of anyone enjoying medical services without a direct payment or going to university without both Latin and Greek or even questioning British foreign policy would have marked the person putting forward that point of view as a definite oddball, someone beyond respectability.
Overton codified how ideas were placed along a line that started with unthinkable, moving through radical, acceptable, sensible, popular and finally entry into the status quo as policy that would appear to have been there for ever. Argue for free university tuition and grants for all (normal until around 25 years ago) and you won't find anyone to debate with you – the subject is off the agenda.
So what was unthinkable has become policy and what was policy has become unthinkable. The trick for investors is to see it coming.
Pitching an idea from the beyond the pale area along the spectrum towards policy can be an overt move. One frequently used method is to repeat the concept over and over so it becomes embedded – it has achieved every day status, the normalcy of the quotidian. Opponents eventually lose the will to argue (or to live).
A second route is to posit ideas that are more extreme than those you really want. US "shock jocks" probably don't believe in bombing Cuba or Venezuela but constantly bombarding the public softens them up for a less extreme course.
In economics, the locus of the argument over taxation has been moved towards low taxes and flat taxes (often the same). The tax rates imposed on the rich 30 years ago are now well into unthinkability.
Once that happens and it becomes acceptable or policy, then the Overton window has moved and the process can start again with a new extreme focus. The reversal of the UK tax machine to increase taxes two years ago is a rare example – sold as a temporary measure, just as income tax was positioned 200 or so years ago.
The Overton theory has been around for centuries – it is not an Overton invention.
And it is not universally accepted. It may depend on concentration of media power in the hands of a small group with an agenda rather than spreading it around a wide spectrum of thinking. So there is a one-way pull on ideas.
Others, including the Rockridge Institute, believe the Overton Window is a distortion. Perhaps, the most serious criticism is Overton's reliance on the mainstream (as opposed to individuals). It is easy to assume that altering the mainsteam one step in whatever direction is more important than the activities of a small group. Investors should note this as well.
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