Tim Harford The Undercover Economist

Articles published in July, 2005

Is public transport safe?

Dear Economist,
After this month’s attacks on the underground, I’m frightened to travel on public transport. Can you offer any advice?

Yours sincerely,

Cath Higgins, Hackney

Dear Cath,

First, let’s consider the risks dispassionately. By switching to a car or bicycle you replace one risk with another. Last year in London, 216 people were killed on the roads and nearly 4,000 seriously injured. A cyclist crushed by a lorry is no better off for having escaped the bombers, and nor are her loved ones.

Still, what traffic does in three months, terrorists achieved in an hour. Will similarly deadly attacks occur frequently, or not? No one can say, but the experience of Madrid and New York suggests terrorist cells, thankfully, aren’t up to the job of a sustained campaign.

Less obviously, the likelihood of bombings in 2006 doesn’t seem higher than it was in 2004. We were always told an attack was inevitable, so the fact that it finally happened shouldn’t radically alter your perception of the dangers.

So much for dispassionate analysis. We both know that fear is not just a matter of objective risk. A flight I took weeks after 9/11 was a miserable experience: it was safe but didn’t feel that way. So Nobel laureate Gary Becker and Israeli economist Yona Rubinstein have studied how people respond to their fears of terrorism. For example, casual travellers stayed away after attacks on buses in Israel, but the drivers stayed in their jobs for no extra pay and the season-ticket holders renewed their tickets. These frequent users were in greater danger but didn’t flinch. Becker and Rubinstein suggest an explanation: facing your fears is something you only have to do once, but regular travellers enjoy the benefits every day. Gather up your courage and buy your travelcard on Monday.

Published on ft.com.

30th of July, 2005Dear EconomistComments off

Dear Economist on NPR

The NPR show ‘Here and Now’ interviewed me about the Dear Economist column. Listen here to my five minutes of fame.

27th of July, 2005RadioComments off

Dear Economist on NPR

The NPR show ‘Here and Now’ interviewed me about the Dear Economist column. Listen here to my five minutes of fame.

27th of July, 2005Dear EconomistComments off

The Rules

Dear Economist,

I’m struggling with the dating game. I am told that one of the “rules” is that I shouldn’t accept a date for Saturday night unless I’m asked out by Wednesday at the latest. The idea, apparently, is to give the impression that I’m busy. Needless to say, I’ve missed out on the last three potential dates. Is this rule really wise?

— Bridget, London

Dear Bridget,

You have the right rule but the wrong explanation. You think that the rule is designed to signal unavailability. However, any game theorist will tell you that a credible signal has to be prohibitively costly to fake. This would be the case if only genuinely busy girls were able to refuse last-minute dates. If a signal can be easily faked it’s not much of a signal, and since any wallflower can pretend to be busy, the signalling value of such pretence is zero because no man will pay attention to it.

The true role of the rule is not signalling but screening. The “no last-minute dates” rule automatically disqualifies any man who is inconsiderate, short-sighted or just not particularly into you. Screening theory, which won enfant terrible Joe Stiglitz a share of the Nobel prize in 2001, recognises the fact that without some foolproof system, women are incapable of telling a Mark Darcy from a Daniel Cleaver.

Admittedly, since you are ruling out dates with all the cads, the number of first dates you accept will fall – perhaps precipitously, depending on the proportion of playboys in your orbit. But the dates you do have will be quality-controlled: you will cut out all that unnecessary flirting, dressing up and snogging in the car at the end of the date, and replace it with long, steady relationships with reliable men. This is what you want, isn’t it?

Published on ft.com.

23rd of July, 2005Dear EconomistComments off

Steven Levitt on ‘The Undercover Economist’

“The Undercover Economist is a rare specimen: a book on economics that will enthrall its readers. Beautifully written and argued, it brings the power of economics to life. This book should be required reading for every elected official, business leader, and university student.”
– Steven D. Levitt, Professor of Economics, University of Chicago; author of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

Ethics of dwarf-tossing

Dear Economist,
My girlfriend and I have diametrically opposed views on the ethics of dwarf-tossing – the sport where very large men compete to see who can throw a very small man the furthest. She says that the tossed are forced into it because of their limited employment options, like prostitutes. I think these men have made a conscious, free decision to do what they do and are compensated for it. Can we get a referee’s call?
— J. Cheng, Stanford, California

Dear Mr Cheng,
I recognise the parallel between a “tossee” and a prostitute, but hardly imagine that this resolves your argument. As for being “forced” into the job by limited options, I imagine this is true in the sense that both prostitutes and tossees would prefer to be movie stars, given the choice. So what?
Yet you may find another comparison instructive. Think of workers in developing-world sweatshops, struggling to make cheap products for our enjoyment. In all three cases, the situation is discomfiting to the sensitive observer. In all three cases, we should respect those doing these horrible jobs enough to see that they are likely to be choosing the best of the alternatives available. Banning sweatshop labour or prostitution is an ethical luxury that can, and does, damage the interests of the supposed victims. (I cannot speak with authority about bans on dwarf-tossing.)
But I am disturbed by the equanimity with which you seem to view dwarf-tossing. The right response is to improve the alternatives. Sweatshops tend to produce their own alternatives as productivity and education grow. It is not clear how dwarf-tossing contributes to better alternatives for very small men; perhaps you and your girlfriend could abandon your squabbling in favour of finding some practical solution?

Published on ft.com.

16th of July, 2005Dear EconomistComments off

Laugh? We nearly cried

In those heady years between the collapse of the Soviet Union and the collapse of the World Trade Center, it sometimes seemed as if the market was the only game in town. The corporations were the players, the World Trade Organisation and other institutions existed to broaden the playing field. Who needed governments? Even Dr Evil, the movie villain from Austin Powers, found his henchmen arguing that he didn’t have to steal nuclear weapons because he already owned Starbucks.

The artistic world caught on to this idea, and the past few years have seen a clutch of documentaries offering critiques of capitalism and corporate power. Although their commercial importance has ranged from modest to trivial, they have all been critically successful: Super Size Me was nominated for an Oscar; The Yes Men won the best documentary award at the US Comedy Arts festival; The Corporation won an audience award from the Sundance film festival; Enron: The Smartest Guys in the Room recently opened across the US to applause from critics. But do any of them tell us anything important about the state of capitalism in the 21st century?

The Yes Men (tagline: ‘changing the world one prank at a time’) claims to be more interested in changing capitalism than explaining it. The film documents two performance artists, Andy Bichlbaum and Mike Bonanno, as they impersonate WTO officials. In one of the film’s more memorable moments, they perform as spokesmen for McDonald’s and the WTO, lecturing a hall of students about a new fast-food business model: with the support of the WTO, excrement from first world burger-eaters will be piped into developing world McDonald’s and served to the starving, who will have the choice of eating recycled ‘post consumer waste’. A hilariously graphic animation sequence shows faeces being curled from a nozzle on to buns. Instead of laughing, the students are outraged. The Yes Men are delighted to reveal how disastrous WTO policies are. But surely they proved something different: that no horror story about the evils of capitalism is too implausible to be swallowed whole.

This sad truth has been ruthlessly exploited by law professor Joel Bakan, author of the book and then the documentary The Corporation. His interminable film offers a strange mixture of sophisticated imagery, 1950s advertising and pundits such as Noam Chomsky, Naomi Klein and Michael Moore, whose contributions are treated with reverence, and free-market supporters such as Milton Friedman, whose contributions are not. It is stitched together by commentary delivered by a robotic narratrix.

The film’s basic idea is intriguing: corporations are legal persons, so what sort of people are they? Bakan runs through a check list of personality traits – ‘Callous unconcern for others’; ‘Failure to conform to social norms with respect to lawful behaviours’ – and concludes that if a company were a person, it would be a psychopath. Unfortunately, the filmmakers find this conclusion so obvious that they do not feel obliged to prove it.

Strip The Corporation of its spin and it starts to look unhinged. All the trouble started, apparently, with the enclosure movement, which began the process of ‘wealth usurpation’ – the premise being that there is no sense that property rights might help to create prosperity, or even that life is better now than it was in those halcyon days when ‘the land didn’t belong to the people, the people belonged to the land’.

For Chomsky, privatisation means handing a company over to ‘unaccountable tyranny’ (I think he means shareholders); there is no mention that private companies are subject to the law, regulators and competition. Some of this stuff is right up there with the story about the shitburgers.

The Corporation gives no space to the real questions about the modern corporation and capitalism. On the subject of marketing, for instance, it spins paranoid fantasies about how anyone – from the doorman at your apartment to the strangers you pass in the street – could be in the pay of the advertisers. It would be more interesting to ask how powerful advertising really is. To what extent can Nike take away my ability to choose footwear? If advertising persuades me to buy a Ralph Lauren shirt, does that mean I will regret the purchase? Bakan is not interested in such questions: the power of advertising is infinite, and his evidence is that advertising executives say it is.

What about the role of governments? Monsanto is berated for producing a drug that stimulates milk in cows while governments are paying farmers to throw milk away. None of the talking heads makes the obvious point that the drug is profitable because governments are paying farmers to throw milk away.

Chomsky does raise an intriguing point about how corrupting it may be to work for a large corporation. ‘Every one of us, under some circumstances, could be a gas chamber attendant or a saint.’ It’s not clear how much space he leaves for individual responsibility – his comments on advertising suggest he has little confidence in our ability to think and choose for ourselves. I disagree with his view, but it is defensible. It’s a shame that, armed with a documentary running well over two hours, Bakan is too arrogant to bother with that defence.

Enron: The Smartest Guys in the Room does a much better job, largely because, in unpicking the causes of the most famous corporate scandal in history, it eschews abstract ranting and shows what individuals did, why they did it and what circumstances made it possible.

Unlike the other films, Alex Gibney’s documentary is quite explicit about the effect of corporate culture on executives, arguing that junior executives lost the ability to question the ethics of their actions. To support this, the film devotes time to explaining Stanley Milgram’s notorious experiments in the early 1960s, in which unwitting subjects were willing to apply agonising and possibly fatal electric shocks to an innocent person because a scientific authority told them to.

Will capitalism inevitably produce despicable characters such as the Enron bosses Ken Lay and Jeff Skilling? Gibney’s film suggests it’s not a question of whether but of how often. At times, however, the narrative is frustratingly vague. Gibney speculates that Enron illustrates a flaw in ‘American-style capitalism’, but fails to acknowledge that corporate governance is in worse shape in most parts of the world. CFO Andy Fastow’s Byzantine structure of interwoven companies is commonplace almost everywhere except the UK and US.

Gibney is also far too hazy about what role ‘deregulation’ played in Enron’s antics. California’s experiment with restructuring its electricity contracts gave Enron opportunities to profit at the expense of the average California grandmother, who – in the words of one Enron trader – had expensive power ‘jammed up her ass’. Yet the California experiment wasn’t a failure because of deregulation; it was a failure because it was an unworkable political bodge. Still, Enron is fun, educational and sobering all at once.

Even more so is Super Size Me, the hilarious and alarming story of Morgan Spurlock’s 30 days in a wilderness of McDonald’s restaurants. Two-thirds of American adults are overweight or obese, and Spurlock’s thoughtful probing of the causes is given shape when he sets himself the challenge of spending a month eating only what he can get over the counter at McDonald’s. This diet contains a pound of sugar a day – and a pound a day is roughly Spurlock’s weight gain over the first fortnight.

Super Size Me is not only funny but fair. Spurlock scrutinises everything from school meals to corporate advertising, but never denies that what we eat is, ultimately, up to us. He obliterates his health so quickly only by following absurd rules – does anyone really eat at McDonald’s three times a day, and choose ‘super size’ whenever it is offered? Many of us eat too much fat and sugar without ever going near a fast-food restaurant, simply because it tastes good. His compelling final message is about healthy living, not McDonald’s, and is much the better for it.

Perhaps because Super Size Me and Enron focus on narrower issues, they avoid the superficialities of The Corporation and The Yes Men. None of the films married a broad perspective with a willingness to ask the real questions about how capitalism is developing. Free markets work only when competition limits the power of companies to exploit employees, shareholders and customers. Is competition working better than it used to? Yes. Is that enough? No, but it’s a great start. But none of these documentaries talks about competition – The Corporation acts as though each industry was controlled by a single, all-powerful organisation. Competition doesn’t always work, but without some sense that it might be beneficial it’s hard to talk sensibly about capitalism and corporate power.

We also learn little from these films about globalisation. Falling trade barriers weaken companies because they subject them to more intense competition from abroad. But globalisation also allows companies more leeway to bargain with governments. None of the documentaries cares to weigh up these effects.

Most importantly, governments escape from these films almost blameless. Bakan’s attempt to persuade us that corporations are responsible for all our problems is pernicious not just because it is mistaken, but because it makes those problems harder to solve. As long as corporations are expected to provide charity to workers making unsellable products, or are blamed for our love of fatty food, governments escape their responsibilities.

Leaving lobbying activities aside, the most profitable company in the world, ExxonMobil, could abandon oil for solar energy but still do nothing to stop climate change because the solar panels would still be too expensive, the oil fields would be bought by competitors, and we would still use the internal combustion engine, because it’s the cheapest way to move a car. We the consumers, not corporations, are the ones driving the cars, buying the junk and drinking the milkshakes. We, and the governments we elect, would achieve more if we weren’t so happy to make the corporations our scapegoats.

16th of July, 2005Other WritingComments off

Will more money make me happier?

Dear Economist,
Will having more money make me happier?
— Karl Johnston, Glasgow

Dear Mr Johnston,

I have been asked the secret of happiness before, but your question is rather specific. To answer it we need to turn to economist Andrew Oswald.

He has worked with numerous collaborators to calculate a “happiness equation”, based on analysing thousands of people’s responses to questions about their contentment. His conclusion is that, assuming nothing else changes, more money makes them happier. He backs it up with a piece of work studying what happens to people who unexpectedly win lotteries – they, too, become happier.

This is what economists expect; not because we believe that people value money for its own sake, but because money can buy all kind of things, and if none of them brought you any pleasure you’d have to be an exceptionally incompetent shopper.

So the simple answer to your question is yes, more money will make you happier. But be careful – simply pursuing money will not, if your relationships, health or job security suffer. Oswald shows that these are vastly more important than money. Getting married produces £70,000-a-year’s worth of joy, although given the cost of weddings these days that’s not much of a bargain. Staying healthy and employed are more important still, worth tens of thousands of pounds a month.

Envy plays a sinister role. Oswald shows that happiness increases with higher income, but it falls with higher expectations. The higher the income of your peer group the more depressed you tend to be. This is not good news for you: since you ask smart questions and read the Financial Times, you must expect a lot out of life. Oswald suggests that you are likely to be disappointed.

Published on ft.com

9th of July, 2005Dear EconomistComments off

The Market for Aid

The video of The Market for Aid book-launch event is now available. Don’t be put off by the fact that I speak first… you can always skip past that and get straight to the panel, Steve Radelet, Sebastian Mallaby, and Michael Klein. They are excellent.

8th of July, 2005Other WritingComments off

Jagdish Bhagwati on ‘The Undercover Economist’

If you need to be convinced of the ever-relevant and fascinating nature of economics, read this insightful and witty book by Tim Harford. Using one interesting example after another, The Undercover Economist demonstrates how economic reasoning — often esoteric and dull, but totally accessible in Harford’s hands — helps illuminate the world around us. Indeed, Harford’s book is a tour de force.

Jagdish Bhagwati, Professor of Economics, Columbia University; author of In Defense of Globalization

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