Articles published in August, 2006

Dear Economist,

It was my birthday recently and I made some resolutions: to slim for the beach, read more serious novels, save money and quit smoking. I am doing OK on the cigarettes so far but I am already back to watching Big Brother and I have put on 3lb. Did I take on too much at once?

– Rebecca Furniss, Parson’s Green, London

Dear Rebecca,

An interesting new paper by three University of Michigan economists argues that willpower is a scarce resource like any other. You cannot exceed your allocation of willpower any more than you can buy a round of drinks with an empty purse.

It’s a plausible view: economic psychologists have found that people make more impulsive decisions if they have already had to resist earlier temptations than if they come fresh to the chocolate bar. Many of us have caved in and given ourselves a “reward” after a day of hard work.

It seems likely that your success in kicking the smoking habit has drained you of the psychic resources to read anything other than Dan Brown. Worse, were you to redouble your efforts to plough through something by James Joyce, your cigarette habit might return, leaving you at risk of becoming the most cultured corpse in the morgue.

The solution is clear enough. First, outsource tough decisions whenever you can…

Continued at ft.com

The BBC 2 TV series, “Trust Me, I’m an Economist”, begins at 7pm on August 18th

It is, I admit, an implausible piece of casting. I am ungainly, balding, bespectacled and rather shy. I make an unlikely television presenter. But I bluffed my way past the front door of a production company called Tiger Aspect, which makes successful children’s cartoons and sitcoms but is not famous for economic analysis. Then it bluffed its way past the front door of the BBC.But the BBC, rather unexpectedly, called those bluffs, so we had to make a television show. I moved my family across the Atlantic to London, abandoned my wife among the packing cases and tried to keep bluffing my way all the way through to the final product: Trust Me, I’m an Economist. The show’s concept is simple: an economist uses his theories to solve problems for ordinary people, finding them dates or new jobs, and explaining a little bit of economics along the way. This is the story of how it all happened.

February 15

I am already discovering things I like about being a television presenter.

1. You get called “the talent”.
2. Other people pay for your sandwiches.
3. You get to take a lot of taxis.
4. You get free clothes, chosen by the producer, who is fresh from producing What Not to Wear. This makes her dangerous. The disgust with which she looks at my existing wardrobe is humiliating. But for a free sandwich, I can cope with this. I could get used to being a television presenter.

February 17

Practice day. I am to spend an hour or two filming at a branch of Coffee Republic. I do the walking-and-talking thing while the cameraman and director walk backwards into lampposts. I enjoy whispering to camera that Coffee Republic has a “secret cappuccino” that is cheaper than its other drinks and is widely available but never advertised. This is going to be dynamite!

The manager’s face wrinkles with concern, and she seeks reassurance from the director that nobody will ever see the footage.

Coffee Republic later confirms that we will not be allowed to film the series on their premises. Oops.

March 2

The first day of proper filming is at Harrods. I have no idea what I’m doing, but saunter through the menswear department caressing the designer suits as the director requests. We film some semi-scripted discussions with the sales assistant, who has more experience on camera than I do.

Harrods is an auspicious place to begin filming, but the day quickly nose-dives as we head to the Harlequin shopping centre in Watford, a mall of epic proportions.

The unpromising trajectory continues as I climb into a small green plywood booth advertising “FREE ADVICE ABOUT ANYTHING”. It is then my role, for the next three hours, to offer witty and incisive advice, soundly based on economic principles, in response to whatever questions the good people of Watford care to throw at me.

Twelve-year-old boys run up to ask:

How can my friend sort out his tiny knob?

and run away again without waiting to hear my wisdom.

A bruiser in a shell suit wanders past, surveying the booth much as a rhinoceros ponders an offending Land Rover. The booth does not feel very sturdy, and I look anxiously around for the assistant director, who is half my size, but I would back in a fight against a rhinoceros any day.

Then a lisping black man in tap shoes and a waistcoat approaches.

I understand that you will answer any question?

Of course.

Excellent. You may know the film Easter Parade, starring Judy Garland and Fred Astaire. But Astaire was given the role after the first-choice actor broke his ankle. Who was the role originally intended for?

I blink. Surely Milton Friedman never had to cope with this.

March 14

The day begins with the producer tearing strips off me for not delivering scripts on time. (Silently, I blame television’s fuzzy deadlines. You know where you are with the printing press.) I am so discombobulated by this that I then fluff my lines dozens of times while walking along Upper Street in Islington. It’s an impossibly difficult set-up anyway, with the camera 200 yards away and plenty of opportunity for people to get in the way, walk behind me making daft faces, or try to sell me the Big Issue mid-shot. I can feel my carefully cultivated facade of serenity crumbling, but after completely losing my cool I do then buy a copy of the Big Issue and feel a bit better.

Afterwards we drive to an organic farm, where I chase organic turkeys until I fall spectacularly into a pile of distinctly organic turkey guano.

March 16

I am starting to realise that film crews exploit people all the time. It’s not the desperate exploitation of the sad cases who would do anything to get on television - although there is plenty of that - but the vampiric drain on the goodwill of everyone we encounter. The assistant producer will persuade a shop owner to let us film for five minutes, and then the crew will scare away the customers for the next four hours. It makes me uncomfortable, but I catch on eventually. If you told the truth, you’d never be allowed to start; if you kept your promises, you’d never finish. Fortunately, we’re never going to see any of these people again.

March 22

This is one of the more surreal shoots. At 9am at a casino on Piccadilly, I am surrounded by handsome men in expensive shirts and beautiful women in strappy party dresses, all of whom have shown up to pretend to play roulette for a couple of hours, with no prospect even of travel expenses. Where do they come from? What jobs have they abandoned for this unparalleled opportunity to do nothing in particular?

We also have a heroic contributor, Andy, who has agreed to look for love with the eyes of the world upon him, guided only by an economist. Within a minute of sitting down at the roulette table with him, I understand why: he’d like to be a television presenter and he wants to know how to get into the business.

“Well, I don’t really know,” I offer. “How did you get into the business?” he presses eagerly. “I wrote a book about economics, but that might not work for you.”

This is the feeblest career guidance of all time, but Andy manfully conceals his disappointment. I promise that, armed with economics, I will find him love. He doesn’t flinch. Good man.

The evening is even more surreal. I meet Andy in a Soho bar for his promised date. He is showing rather a lot of chest hair and a medallion, but despite the sartorial expertise of the producer, this isn’t What Not to Wear, and I am forced to limit myself to advice based solidly on economic theory.

It’s a speed date, and Andy is to pick his moment to move in on his favourite lady, armed with a pair of tickets to a top West End musical, and the economic insight that will allow him to prove that he is a sensitive, loyal man rather than a playboy. A minor problem is that we forgot to bring the tickets with us. A more substantial problem becomes apparent only after Andy is putting the moves on the lovely Brooke from Perth. My fault, no doubt, but it turns out that Andy does not actually understand the economic advice I gave him and proceeds to bungle the whole thing. The only question now is whether Brooke will notice Andy’s mistake. bastardised economics, dubious flirting, great television.

March 24

My kind of filming: I deliver the first lines of the entire series staring up at the camera from the comfort of my own bed. I need a few takes, but that suits me very well.

March 29

We’re filming in a pool hall in Notting Hill, so that I can demonstrate an odd piece of economic psychology by concealing pool balls inside champagne buckets: Paul Daniels without the good looks and gravitas. The patient contributor sounds exactly like Ricky Gervais and looks quite like him too, which is disconcerting. I keep studying his eyes for the twinkle that would reveal a deliberate impersonation, but to no avail.

I have an embarrassing admission here. There is absolutely no point in this experiment. It is interesting and has a wonderful history involving the economist and Vietnam dissident Daniel Ellsberg, but it does not remotely advance the economic ideas in the show. It looks great. It stays in. I think it’s the only time we include a camera-friendly non sequitur - with dozens of scenes and examples in the series, I suppose that is forgivable.

31 March

A nightmare shoot. On Friday night we drive to Essex and seek nourishment in the most bizarre restaurant I’ve ever encountered - at one point a live lobster, faced with being flambeed, rolls off the table and makes a break for freedom. Shortly afterwards we are served with lobster pizza, complete with half lobster in the shell. I feel trapped in a Terry Gilliam movie.

We then move to the shoot itself, in which we film six unsuspecting couples, all expecting a baby within a few weeks, enjoying yoga and pre-natal advice. I stand with the yoga class in the background explaining why economics predicts divorce for some of them. I try to speak sotto voce so that the camera can hear, but the yoga class cannot. By take 20 the camera still hasn’t heard but the yoga class has a pretty good idea.

April 3

A better day. I advise a primary-school teacher who wants to change careers and become a maitre d’ at a top London restaurant. A spot of optimal contract theory and she has a chance, serving at lunch but bearing all the performance risk herself. The restaurant is beautiful. She is beautiful. The manager is beautiful. Even the economics are beautiful. She gets the job.

April 11

Just when I thought all the humiliations were complete, I show up to the shoot wearing, as requested, black trousers and a long black leather jacket. The black is useful for the special effects on the shoot - although we’re not talking Jurassic Park here - but so appalling is the fashion blunder that the production assistant spends half an hour on the phone to the producer seeking advice. I can’t hear much but I do catch a shrill “You didn’t let him wear his own clothes, did you?” I wouldn’t mind, but it’s my favourite outfit.

April 12

Finally, I get to watch something resembling a finished version of the “love” show, our flagship. And. it’s pretty good. I mean, there’s me blundering around in the middle of it, pulling odd faces and speaking in a funny voice. But apart from that, it’s not bad at all. It’s funny, there is some economics in it and it mostly makes sense. The camera work is gorgeous. The music is fun. Andy’s quest for a date is as rich in tragicomedy as it is in economic theory. I can actually imagine somebody watching this. Trust me.

First published in FT Magazine

Benjamin Franklin reminded us that death and taxes were life’s only certainties. Franklin was plain wrong. It is easy to avoid most taxes. If you don’t want to pay sales taxes, don’t buy things. If you don’t want to pay income tax, don’t earn money. If you’d rather avoid tax on petrol, ride a bike.

Typically the result of this perfectly legal tax dodging is what we economists call “deadweight loss” and what normal people might call a pointless waste. If you’re willing to pay £8.50 for a T-shirt but not £10, VAT will tip the balance between you buying and not buying. Because of the tax, you don’t get the shirt you wanted, the shop owner doesn’t collect the money she wanted - and, of course, the taxman doesn’t collect any revenue either. Everybody is worse off.

This is just another example of a favourite economic maxim: “People respond to incentives.” It’s cute, and true, but not always helpful. We need to know how much, and in which direction. Sometimes the question has huge policy weight. For instance, there’s an enthusiastic movement in the US that believes income tax cuts can raise revenue because they stimulate more work and more income and take a smaller slice of a much bigger pie. This view is implausible at anything other than very high tax rates. Cut taxes from 30 per cent to 25 per cent, and the economy needs to expand by a fifth before total revenues recover. That is an implausibly large expansion. In fact, it’s not even obvious that income tax cuts stimulate more work. They might indeed encourage people to work overtime knowing that they will keep more of the proceeds. They might equally encourage people to slack off: with take-home pay rising, why work so hard?

Still, it is unwise to underestimate the power of taxes to alter behaviour. Perhaps following Franklin, Margaret Mitchell commented in Gone with the Wind, “Death, taxes and childbirth! There’s never a convenient time for any of them.” She should have seen the economic research emerging from Australia. It turns out that death, taxes and childbirth can be and are rescheduled to suit the needs of Australian bank accounts.

The economists who realised this are Joshua Gans and Andrew Leigh, who have been publishing a series of papers and notes showing some suspicious patterns in Australian birth and death rates. Australia passed legislation to abolish estate taxes in 1978, meaning that anyone who died on or after July 1 1979 was entirely exempt, but anyone dying before that date would be fully subject to the inheritance tax, paid by about one in 10 of the departed. The fall in the death rate in late June of that year is quite striking, as is the sudden rise in early July. Gans and Leigh estimated that one in 20 likely deaths in the last week of June were postponed long enough to escape inheritance tax. With 90 per cent of estates too small for tax anyway, this suggests that fully half the likely taxpayers managed to escape death long enough to escape the tax too.

A happier example of the same phenomenon came in the summer of 2004. The Australian government announced in May that it would pay a “baby bonus” of A$3,000, about £1,250, to each family of a child born on or after July 1. The effect was unsurprising, at least to an economist: the number of happy events on July 1 was an all-time record, and twice as many as on June 30.

I shall bear this in mind. The Harford family is due to expand in September - or possibly October. We shall have to see what the incentives are before we decide.