Tim Harford The Undercover Economist

Articles published in 2018

Did your holiday make you more creative?

A summer of browsing through art galleries continues. After the old masters in Venice in July, I stopped past some humble venues in the Lake District to pay my respects to John Ruskin, Kurt Schwitters and even Beatrix Potter.

The conventional wisdom is that gazing at art improves the soul: it might make me a better person, or at least a better draftsman. It seems absurd to suggest that it will make me a better economist.

Yet perhaps it will. A few years ago, a team of researchers (Jaclyn Gurwin and colleagues) arranged for 18 randomly chosen first-year medical students to take a short course in art appreciation at the Philadelphia Museum of Art. During six 90-minute sessions across a three-month period, the students learnt to study, describe and criticise works of visual art. They were tested against a control group of 18 fellow students before and after the art course.

Each student was given ophthalmologic tasks — observing, describing and diagnosing images of diseases of the eye. The students trained in art showed substantial improvement in these tasks; the control group had actually declined. In this small but rigorous trial, medical trainees became better eye doctors if they spent time studying art. If we want to get better at what we do, then, perhaps we would benefit from taking a break and doing something different. It’s a kind of cross-training for the mind.

The journalists David Epstein and Malcolm Gladwell dub this idea the “Temin Effect”, after the brilliant biologist Howard Temin, a Nobel laureate with interests ranging from social activism to philosophy and literature. It might seem a stretch, and I certainly would not place too much weight on a study of 36 participants. But that study is by no means the only evidence that variety feeds creativity.

Exhibit A: David Bowie. In the build-up to his trilogy of Berlin-based albums, Bowie had collaborated with John Lennon, starred in the film The Man Who Fell to Earth — and worked inconclusively on its soundtrack — lived in Geneva, Los Angeles and Philadelphia, and drafted an autobiography. In Berlin he alternated his own albums with producing and writing for Iggy Pop.

Exhibit B: Michael Crichton. Originally a doctor, in the 1970s and 1980s he wrote novels and directed a mid-budget thriller, Westworld, but also wrote non-fiction books about art, medicine and computer programming. The fruits of all this variety? In 1995 Crichton had achieved the scarcely believable feat of creating the world’s best-selling book (The Lost World), television show (ER) and film (Congo); in 1996 he did it again (Airframe, ER and Twister). I haven’t even mentioned Jurassic Park.

If those examples seem a little middlebrow, Exhibit C is Charles Darwin. He rotated between projects over the course of decades. His article “Biographical Sketch of an Infant”, inspired by his baby son, was published in time for William’s 38th birthday. On the Origin of Species was legendarily long in the making, in part because Darwin simultaneously spent nearly 20 years working on creepers and insectivorous plants. His book on earthworms took 44 years to come to fruition. All these projects were completed in parallel.

One can list examples interminably, but are they representative? Several psychologists have studied the working habits of highly creative artists and scientists, using a variety of methods and selection criteria. Perhaps the most respected is Bernice Eiduson’s life-long study of 40 promising scientists, beginning in 1958. After Eiduson’s death, analysis of her subjects (including the chemist Linus Pauling and theoretical physicist Richard Feynman) concluded that those who enjoyed the longest and most productive careers tended to work on several problems at once. They frequently shifted focus in their research. It helps to look at something fresh.

Another study of high-performing artists and scientists, by Mihaly Csikszentmihalyi, found the same tendency to slow-motion multitasking. Slowly switching from one project to another and back again seems to be standard practice for people with an enviable record of originality and creativity.

There are several reasons why this might be so. Different fields cross-fertilise each other. We process ideas unconsciously, once we’ve stopped thinking about them. And sometimes we simply need a rest. In the modern world, this may manifest in twitchy task-switching to another browser window. That is unhelpful. But taking a walk, visiting a gallery, picking up a book or planning a different project — this is often the kind of change we need. Darwin soothed himself by walking circuits of his garden, and by studying those earthworms.

All this suggests that the little study at the Philadelphia Museum of Art may be on to something real. When we take a break from our normal jobs and do something different, we may be being more productive than we realise. Of course, a holiday is worth taking for its own sake and one should not visit an art gallery purely as a means to some other end. But new experiences are useful as well as fun. Why not try something fresh in September?

 

If this topic grabs your interest, there’s much more in my book “Messy: How To Be Creative and Resilient in a Tidy-Minded World” which is now available in paperback both in the US and the UK – or through your local bookshop.

Written for and first published in the Financial Times on 24 August 2018.

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Is Twitter more unequal than life, sex or happiness?

Bill Gates has more money than I do. JK Rowling sells more books. Katy Perry has more Twitter followers. Usain Bolt is faster. And I can only presume that Buddhist monk Matthieu Ricard, reportedly “the happiest man alive”, is more cheerful.

The world is an unequal place. Exactly how unequal, though, depends on what we measure and how we measure it.

Researchers concerned about the concentration of money in the hands of a small number of people tend to focus on the income or wealth share of high earners. In the US, the income share of the top 1 per cent has soared from 11 per cent in 1980 to 20 per cent in 2016, according to the World Inequality Report 2018. But in western Europe it has merely moved from 10 per cent to 12 per cent.

The top income share highlights something important, but it misses changes elsewhere in the income distribution. If you want a single number to summarise the whole distribution, the natural choice is the Gini coefficient, which varies between zero (equality) and 100 per cent (one person has everything).

The coefficient of post-tax income in the US is nearly 40 per cent, and has been increasing for years. This rise — alongside the increase in the US top income share — has created a perception that inequality is rising everywhere and by every measure. That is not true.

Globally, the Gini coefficient of income is a shockingly high 65 per cent, but it is falling, helped by strong growth in large emerging economies. In France, the Gini coefficient of income has been broadly falling since the 1950s; it is now about 29 per cent.

In the UK, the Gini increased sharply in the 1980s, but not since; it is around 35 per cent today. And as the website Our World In Data observes, the Gini coefficient was also much higher a couple of centuries ago in the UK, perhaps 50 or even 60 per cent.

So that is the story for income inequality. But the Gini coefficient can be applied to inequality in any set of numbers you like, from the number of storks in each country to the body weights of a family of hippos. For example: authoritative data on sexual activity in the UK are available from Natsal-3, the third National Survey of Sexual Attitudes and Lifestyles. Natsal-3 reports the number of opposite-sex partners we say we’ve had in our lives, and the number of times we say we’ve had heterosexual sex in the past four weeks. (It will surprise nobody to hear that men and women make rather different claims, so I’ve averaged their responses.)

Since I know you may be curious, I have made my own calculations, based on these data. For 35-44 year olds, the Gini coefficient of recent sexual activity is 58 per cent. The Gini coefficient of lifetime opposite-sex partners is lower: 50 per cent. Both are much higher than income inequality in the UK.

Nor are these figures driven by a few outliers with thousands of partners. When it comes to the bedroom, we don’t need to consider extremes to witness considerable inequality: many perfectly ordinary people have had only one sexual partner, or none, and many perfectly ordinary people have had at least 10. Bigger variations exist in income, but only at the extremes of distribution.

Of course, while one can measure income and sex using the same statistical method, that does not mean the moral or political implications are comparable. Most of us wouldn’t mind having more money, but it is far from obvious that we all want more lovers. Who has the time?

I would be pleased if the Financial Times decided to increase my salary, but unsettled if they set up a profile for me on Ashley Madison, the marital affairs site. And while the government can redistribute money, it cannot redistribute consenting adults.

There is more to life than money and sex. What about — well, life itself? Some people die young; others endure.

Researchers have computed Gini coefficients for longevity. The economist Sam Peltzman found that inequality of life expectancy has declined enormously since the mid-19th century. The Gini coefficient was then around 50 per cent in the US, because so many people died in infancy. It is now about 10 per cent.

Across the world — according to Jeroen Smits and Christiaan Monden — longevity inequality is just 18 per cent. Looking only at those who survive to adulthood, it is 12 per cent. Recall that the Gini coefficient of income is 65 per cent globally. Since life cannot be reallocated, it is cheering to see that it is far more equally distributed than income.

I have given into temptation in comparing Gini coefficients across domains. Such comparisons can lead us astray. Yes, Perry has a thousand times as many Twitter followers as I do, but Bolt will never be a thousand times faster, nor Ricard a thousand times happier — not according to the oft-used life satisfaction scale of 0-10, anyway. Does that make Twitter more unequal than happiness? I am not sure.

There lies a statistical lesson: measuring inequality is just a step on the road to understanding it. Or so a Zen statistician might say.

 

Written for and first published in the Financial Times on 17 August 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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Why big companies squander good ideas – a reading list

My FT Magazine cover story tomorrow is “Why Big Companies Squander Good Ideas“, and I wanted to give some pointers to further reading, because I learned a lot and had a lot of fun writing this piece. (I’ll post the feature article on this website in due course.)

 

About innovation

The classic here is Clayton Christensen’s The Innovator’s Dilemma (UK) (US) – a book I loved and found compelling, but also has some tantalising gaps. Well worth your attention, though.

Then there is Joshua Gans’s The Disruption Dilemma (UK) (US) – this book places Christensen’s work in a broader academic context, in particular comparing and contrasting with the work of Rebecca Henderson. Lots of interesting case studies and the distinction between demand-side and supply-side disruption is instructive.

The seminal 1990 Rebecca Henderson article, with Kim Clark, is here.

Malcolm Gladwell’s New Yorker essay on Xerox is a classic, and the New York Times published a lovely biographical essay about Steven Sasson, the inventor of the digital camera at Kodak.

Chris Goodall’s book about solar power, The Switch, is a must-read.

If you’re intrigued about what my colleagues and I were thinking about back in Shell around the year 2000, here are the long-term energy scenarios created around that time, out to 2050.

 

About tanks

The original spark for this piece came from reading The Psychology Of Military Incompetence (UK) (US). Not much of that book made it into the final piece, partly because I don’t really buy Norman Dixon’s curious thesis. But there are some amazing and tragic stories of error in this book.

Brian Holden Reid has a thorough biography of JFC Fuller (UK) (US), and Mark Urban’s Generals (UK) (US) has a chapter on him with some telling details.

And there’s also this more academic essay on military innovation in peacetime, by Murray and Watts.

 

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7th of September, 2018MarginaliaResourcesComments off

How can we resist the seduction of the mobile phone?

On a recent trip to Venice I saw a striking sight. Of course, I saw many: the Ponte de Rialto at dusk, the ornate glasswork of Murano, the view over the city from the bell tower of San Giorgio Maggiore, and works by Bosch, Titian and Tintoretto. Lucky me.

But the sight that has stayed with me was plain whenever I rode a vaporetto, Venice’s waterborne answer to the London bus. All around were people pecking at screens as they played slither.io or scrolled through Instagram feeds.

A few of them, no doubt, were locals who had grown tired of gawping at their own city. But on a weekend in high summer, my guess is that most were tourists. The vaporetto provided them with a magnificent view of a unique city that is neither easy nor cheap to visit. Yet they felt compelled to look away from the vista they had paid so dearly to gaze upon.

We are hooked. Our devices can, at any moment, demand that we focus upon them by flashing, pinging or even vibrating insistently against our skin. They are constantly evolving to do so more and more effectively. As a result, phone users in developed countries now spend about two hours a day pawing at their little blue screens — a big chunk of our available leisure time.

Recently, the big tech companies, most prominently Apple, have started to trumpet new distraction-fighting features, such as tools that track your usage or remind you to stop watching YouTube videos. While welcome, these features have been halfhearted and slow to arrive.

No wonder. Technology companies, notably Facebook and Google, make money by selling your attention to advertisers. The more attention they have, the more they can sell. There is a limit to how much we can expect them to help us regain control.

So, without letting the technology companies off the hook, the main responsibility for managing our attention has to lie with us. And there is plenty we can do.

The first and simplest principle: if you want your future self to do something, make it easy; otherwise make it hard. So, switch off notifications — of course. Make sure your phone automatically reverts to a silent mode every night, muting incoming calls and messages. My phone is silent between 10pm and 7am; a more aggressive muting might be better.

Set up your phone charging station away from where you sleep (although the London Fire Brigade says don’t charge it at night at all). This is obvious advice, but I can assure you it works. Your phone becomes less distracting without you needing to exert any willpower; I predict that you will recoup the set-up time within 24 hours.

Tristan Harris, a former Google designer and founder of the Time Well Spent movement, suggests taking things further — putting only basic tools such as a calendar and a camera on your phone’s home screen. He hides icons for distracting apps altogether: if you want to use Instagram, you can type “Instagram” into the phone’s search bar. This works because while the search is quick, it requires deliberate effort.

My fellow tourists, I guess, started by taking photographs. Then their attention leaked: they wanted to post those photographs on social media, and from then they slipped unthinkingly into games or newsfeeds. Using Mr Harris’s method might have helped.

A second piece of advice is to notice your own emotional state. On vacation I sometimes found it easy to forget about my phone. The exceptions were instructive: a (small) problem arrived on email; I felt slightly anxious, wanted to send a quick response, wanted to alert the necessary people, wanted to see how they had responded, and suddenly I was checking every few minutes until I noticed my own feelings and got a grip.

Third, keep adapting, because the tech companies certainly will. A few months ago I installed an inbox blocker, a simple plug-in which deflects me from my email inbox by forcing me to click an extra button. After a while I noticed unintended consequences had set in: I had hit a mental block while working, so I would self-medicate by going to check email, where I would be fended off by the inbox blocker and end up checking social media instead. The result: just as much distraction in a less useful form. I have now uninstalled the blocker.

Finally, use social pressure. Platforms such as Facebook, Snapchat and LinkedIn turn reciprocity and fear of missing out into weapons. The most egregious is the Snapchat “snapstreak”, where you need to keep exchanging messages every 24 hours with a friend to keep the streak going. Some kids will do anything to maintain a streak — including giving out their passwords to let others message when they cannot. Adults may sneer, but only because our own phones are subtler in the way they manipulate our social anxieties.

The good news is that social pressure works both ways. Make a point of telling your partner, your friends or your colleagues that you will not look at your phone during a conversation, a meal or a meeting. Ask them to nag you when you fail — and to remind you to look at the view.

 

Written for and first published in the Financial Times on 10 August 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop. Yes, the iPhone is one of the inventions.

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Four awesome-yet-accessible economics and business books

The fine folk over at Planet Money’s The Indicator (an excellent podcast) recently spent five episodes discussing five of their favourite fun-to-read economics and business books. It’s a good list, in my humble opinion, and not just because it includes… (drum roll)

Fifty Inventions That Made the Modern Economy, which is emerging in paperback in the US as I type. The fun of this book has been to weave together economic ideas such as winner-take-all effects with the more human side of everything – surprising stories, inspiring (or villainous) people, and generous slices of history. (Or, as my publishers put it, “Who thought up paper money? What was the secret element that made the Gutenberg printing press possible? And what is the connection between The Da Vinci Code and the collapse of Lehman Brothers?”)

Lots more about the book here – the New York Times talked about my “prodigious skills as a storyteller” (shucks) and there are plenty of other cheering reviews too.

 

But what of the other four? One I have not read and cannot vouch for, but three books that I admire more than somewhat:

Diane Coyle’s GDP: A Brief But Affectionate History (US) (UK) – Diane writes elegantly and really understands the topic deeply. This is a thoughtful exploration of the historical strengths and the emerging weaknesses of an important measure of our economy. A lot of books about GDP seem to begin with the assumption that it’s transparently an absurd measure; I learned more from Prof Coyle’s more balanced analysis.

Linda Yueh’s What Would The Great Economists Do? (US) (UK) delivers lovely potted biographies of some of the greats (Smith, Marx, Keynes, Robinson, Fisher and others) and asks what they would think about contemporary economic problems – for instance, Joan Robinson on wage stagnation. The biographies are uniformly fascinating; the contemporary analysis seems (to me) more interesting as the economists get  more recent. Fisher and Robinson had a lot to say about problems today; Smith and Marx not so much, at least not in this book. Still: recommended!

Then there is Sun Tzu’s The Art of War. No, I don’t understand why everyone things this is somehow a business book. It’s a thing of beauty, though. (US) (UK)

 

 

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28th of August, 2018ResourcesComments off

Five lessons from the US government’s ultimate innovators

Sunday July 29 is an important day in the history of innovation. It is the 60th anniversary of the founding of the US space agency Nasa, but that is only indirectly the reason. The incidental benefit of Nasa’s creation was that it stripped another young organisation of its funding, projects and purpose.

Founded in 1958, Arpa — the Advanced Research Projects Agency, part of the US Department of Defense — started the space race, but lost its role to Nasa a few months later and was described by Aviation Week as “a dead cat hanging in the fruit closet”.

But apparently cats really do have nine lives, because Arpa resurrected itself, and went on to play a foundational role in the creation of the internet, the Global Positioning System and, more recently, self-driving cars.

So what did Arpa do, does it deserve so much credit and, if so, can the trick be repeated in other fields such as clean energy or medicine? When it comes to an invention such as the internet, it is never easy to know whether success appeared by design or by luck. Still, here are five lessons I draw.

The first is that speed and flexibility are a vital part of the Arpa model. In fact, the agency has proved such a chameleon that some think it is a mistake even to speak of an “Arpa model”. The organisation can’t even figure out its name: it stuck “Defense” in front in 1972, took it off in the 1990s and is now back to being known as Darpa. The agency has proved able to ramp-up and pull back from projects with a speed that most organisations would find bewildering.

Consider the case of Robert Taylor. He was hired by Arpa in 1965 and made director of the information processing program a few months later, at the age of 34. He then hatched the idea of building a network to connect mainframe computers at campuses across the US.

Katie Hafner and Matthew Lyon’s history of the early internet, Where Wizards Stay Up Late (UK) (US), tells the story of what happened next. Taylor sauntered into the office of Arpa’s boss, Charles Herzfeld, and explained his thinking.

“Great idea,” Herzfeld said. “Get it going. You’ve got a million dollars more in your budget right now. Go.” That was the beginning of the internet. The network, Arpanet, was running less than four years later. The meeting itself had taken 20 minutes.

My second lesson is linked to the first. Arpa hired scientists rather than bureaucrats, and tempted free spirits to work for them by giving them tight control over large budgets, and a short tenure before they were released.

Many of the agency’s most influential programme managers only stayed for a couple of years. One was JR Licklider, a visionary psychologist who saw that the future of computing lay in a more intuitive real-time interface between humans and machines. Ivan Sutherland, his successor, and one of the fathers of computer graphics, stayed no longer. Taylor succeeded Mr Sutherland and remained for three years. The three men got a lot done in a short space of time.

Computer geeks at the time were fond of retelling a story they attributed to Soren Kierkegaard, about a man who fed wild ducks until they grew fat and tame. Arpa was deliberate about not taming its wild ducks.

A third principle is to create a vigorous marketplace for ideas. Arpa projects were distributed to a variety of universities and other institutions, practical prototypes were widely shared, and researchers brought together to learn from and pull apart each other’s work.

Shane Greenstein of Harvard Business School notes that as a result, the agency managed to gain some of the benefits of decentralisation while maintaining a degree of focus and discipline.

Fourth, find the gaps. Some organisations fund truly fundamental research very well, and other organisations — often private-sector firms — excel at producing polished products to meet well-defined demands. But the gap between blue sky research and a marketable end-product is not always well served, and Arpa has succeeded by identifying projects in the middle.

A recent paper by Pierre Azoulay, Erica Fuchs, Anna Goldstein and Michael Kearney emphasises that not every innovation problem can be solved with an Arpa-style agency. Nevertheless, there seems promise in the 21st-century efforts to create them for intelligence (Iarpa) and energy (Arpa-E).

Finally, don’t forget the mission. Arpa projects may have seemed speculative, but the agency kept its feet on the ground by focusing on US national security. There is, of course, an important role for pure theoretical research — but that is not the role of this type of agency. Arpa had a mission in mind, and trusted the scientists and engineers to deliver.

The clarity of the mission, quality of programme managers and the trust shown in them may explain some of the agency’s successes, especially in its glory days. That trust ran deep.

Dwight Eisenhower, who was US president when the agency was first established, asked after “my scientists” on his death bed in 1969 — calling them “one of the few groups that I encountered in Washington who seemed to be there to help the country and not help themselves”.

 

Written for and first published in the Financial Times on 27 July 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to pre-order online or through your local bookshop.

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The Peter Principle is a joke taken seriously. Is it true?

There are a lot of idiots around — just look at the front benches of the House of Commons. But why do the idiots reach such elevated positions?

Many onlookers feel sure that the successors to David Davis, the UK’s former Brexit secretary, and Boris Johnson, ex-foreign secretary, cannot possibly be worse than the men they replace. Mr Davis was at least dignified in his resignation. Mr Johnson is widely regarded as the most disgraceful occupant of the post imaginable. And yet both men departed at the hour of their choosing: they were incompetent yet unsackable.

Part of this displays the awful dynamics of British politics today. But it also reflects something more universal. In 1969, Laurence Peter, a professor of education, and Raymond Hull, a playwright, published a management book that became a bestseller and an enduring classic: The Peter Principle. (UK) (US)

The Peter principle states that “every employee tends to rise to his level of incompetence”. If someone is good at her job, she’ll be promoted into a job that demands different skills. If she’s good at the new job too, she’ll be promoted again, requiring yet another set of skills. One day, she will arrive at a job for which she is wholly unsuited, and there she will stick. Since when did a manager ever get sacked for anything?

The Peter Principle is satire: it mocks management and it mocks books about management. It is striking, then, that most people take it quite seriously. The Harvard Business Review has published numerous straight-faced responses.

Two questions, then: is the Peter principle true? If so, what can we do about it?

We should acknowledge that the Peter principle may be an illusion. The top jobs are difficult to do well; they can make monkeys out of capable people. We shouldn’t be surprised if it is easy to call to mind examples of business or political leaders who have struggled. That would not by itself mean there are systematic errors in the way people rise to the top.

People were not promoted for behaviour that might seem correlated with managerial ability — in particular, those who collaborated with others were not rewarded for doing so

But this year, the economists Alan Benson, Danielle Li and Kelly Shue published what may be the first detailed empirical investigation of the Peter principle. Profs Benson, Li and Shue used data from a company that provides performance management software to sales teams; the data cover 214 firms, more than 53,000 workers and more than 1,500 promotions. This data set was ideal for identifying highly effective sales staff, and also provided enough information to evaluate what happened to a team once a hotshot salesperson was promoted into the role of team leader.

The authors of the paper discovered that the best salespeople were more likely to be promoted, and that they were then terrible managers. The better they had been in sales, the worse their teams performed once they arrived in a managerial role.

What’s more, people were not promoted for behaviour that might seem correlated with managerial ability — in particular, those who collaborated with others were not rewarded for doing so. What mattered were sales, pure and simple.

In short, Professor Peter was right. Brilliant people are promoted until they become awful managers. Perhaps employers are using the prospect of promotion as an incentive, and are willing to accept the collateral damage caused by all these terrible managers. If so, they are probably making a mistake. It would be better just to encourage the star salespeople with cash bonuses instead.

There is a more radical approach. One of my favourite IG Nobel Prizes (the IG Nobels reward “achievements that first make people laugh, then make them think”) was awarded to two physicists and a sociologist — Alessandro Pluchino, Andrea Rapisarda and Cesare Garofalo — who wondered how organisations might evade the logic of the Peter principle.

If performance at one level of a hierarchy is uncorrelated with performance at the next level up, the best strategy is simply to promote the very worst people. Nobody knows whether they will make good managers, but at least they will no longer be dreadful staff — or as Dogbert in the cartoon strip Dilbert put it back in 1995: “Leadership is nature’s way of removing morons from the productive flow.”

There are two difficulties with this approach: first, it may be too extreme to assume that no skills at all carry over from one job to the next; second, if the reward for failure is promotion, then the likely response is an organisation full of people bent on sabotage. So Profs Pluchino, Rapisarda and Garofalo suggest a compromise: promote people at random.

This may be the best response to a world where leaders stick around until they are ready to depart. But there is an obvious alternative: when people are not up to the demands of their job, we should not wait for them to resign. They should be sacked — or, perhaps better, demoted back to the roles where they once flourished. A mistake is regrettable, but stubbornly sticking to the mistake is far worse. Just ask the British electorate.

 

Written for and first published in the Financial Times on 20 July 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now (or very very soon) in paperback – feel free to pre-order online or through your local bookshop.

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The cool tools that are reshaping economics

If Hollywood is to be believed, every mad scientist who ever lived has a laboratory full of bubbling flasks, flashing consoles and glowing orbs. Science writer Philip Ball — who has visited countless research labs — tells me that reality is not so very different: the gear may be more subdued, but the gear is always there.

Science depends on tools, often instruments to detect or measure that which was previously undetectable — think of Galileo’s telescope or Newton’s prisms. Nobel Prizes have often been awarded to the physicists who developed such tools: the cloud chamber (1927); the electron microscope (1986); and LIGO, the laser interferometer gravitational-wave observatory (2017).

What, then, of economics? Economics has its own quasi-Nobel Prize, but it is a stretch to find a single example of a prize being awarded for the development of new tools or instruments. Simon Kuznets (laureate in 1971) probably has the best such claim, for developing the ideas behind the gross domestic product measure. Alas, GDP is a broad aggregate with limitations that Kuznets himself understood all too well.

The great Alfred Marshall described economics as being the study of humanity “in the ordinary business of life”. Unfortunately, in Marshall’s day — he died in 1924 — there was no way to observe the ordinary business of life, except perhaps as an anthropologist. Economists spent a lot of time in armchairs, thinking hard about theory rather than measurement.

Some economists now make progress using old tools from other fields. MIT’s Esther Duflo, winner of the prestigious John Bates Clark medal, answers economic questions using randomised controlled trials. RCTs are typically dated back to Austin Bradford Hill’s 1948 trial of streptomycin for tuberculosis. (Hill was trained as an economist, so perhaps we can score that one for the profession.)

But the holy grail is to be able to observe the ordinary business of life in detail, in real time, and at scale — ideally all three at once. That was once an impossible goal, but three new developments put that goal within reach.

The first is the availability of high-resolution satellite images. In the mid-1990s, an economist named Alex Pfaff realised that these images could be used to answer questions about the connection between development projects and deforestation in the Amazon.

Hundreds of others have followed suit. Satellites can easily measure illumination at night, a simple way to track economic activity and patterns of urban development. It is also possible to measure various kinds of air pollution, and to observe the growth of crops. Algorithms are starting to extract subtle information at scale: how many Ethiopian homes have tin roofs? Which roads in Kenya are in good condition? And ever-cheaper small satellites are taking detailed photographs of everywhere, every day.

An even bigger change is that economists are using administrative data. I realise that “economists are using administrative data” is a contender for the most boring sentence uttered in 2018. But over the past two decades or so, this has been a quietly revolutionary move.

Administrative data are the numbers generated by governments or private companies for the purposes of getting things done. Schools keep track of attendance and grades. Tax authorities know your (declared) income — but also where you live, your age, and perhaps who your children are.

As such records have become digitised, they can be used to answer serious questions in research. For example, tax data can tell us the extent to which the children of rich or poor parents grow up to be rich or poor themselves. These detailed data are now at the forefront of empirical economic research.

According to Dave Donaldson, who like Prof Duflo is a John Bates Clark medallist at MIT: “In my field, international trade, I rarely see a paper that doesn’t use customs-level data. Every shipment generates a record which will specify what it is, where it came from, where it’s going, and the tax paid.”

A third measurement tool is the mobile phone. Every time a call is placed, the phone company generates a record of who called whom, when, for how long, and where the phones were, sometimes to within less than a hundred metres. With that kind of “metadata”, economists and other researchers can ask questions such as: how rapidly are people moving around, and to what extent is that correlated with the spread of an epidemic? Is a city’s transport infrastructure working well? How quickly are refugees integrating into a new society?

This is both an opportunity and a challenge for economists. Data scientist and economist Josh Blumenstock told me that “anyone who graduated with an economics PhD more than five years ago has no idea how to handle this data, and is frantically scrambling.”

Surely the scramble will produce results. At last, it is possible not just to theorise about Marshall’s “ordinary business of life”, but to observe it. Our tools are letting us see something new — and what we can see determines what we can think.

 
Written for and first published in the Financial Times on 13 July 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now (or in the US, very very soon) in paperback – buy online or through your local bookshop.

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What does a robot accountant look like?

What shall we do when the robots take our jobs? Last week’s column discussed mass technological unemployment, and readers were quick to write in with variants on the same common sense suggestion: tax the robots.

“Give a robot a deemed income equivalent to the wage of the human it is replacing, with a default of the average income,” wrote one. A similar suggestion: “If one robot displaced five people earning a modest £20,000 each, then that robot could be said to have an economic value of £100,000 per annum.” Both correspondents proposed an income tax or similar levy on this robot-generated output.

I’m grateful for all constructive comments, but particularly grateful for these because I think they are wrong in a fascinating and instructive way. The fault is mine: I set a trap every time I talk about “robots” and “jobs”. That is not how automation happens.

Consider an idea dreamt up in 1978, released in October 1979, and so revolutionary that the journalist Steven Levy could write just five years later: “There are corporate executives, wholesalers, retailers, and small business owners who talk about their business lives in two time periods: before and after the electronic spreadsheet.”

Spreadsheet software redefined what it meant to be an accountant. Spreadsheets were once a literal thing: two-page spreads in a paper ledger. Fill them in, and make sure all the rows and columns add up. The output of several spreadsheets would then be the input for some larger, master spreadsheet. Making an alteration might require hours of work with a pencil, eraser, and desk calculator.

Once a computer programmer named Dan Bricklin came up with the idea of putting the piece of paper inside a computer, it is easy to see why digital spreadsheets caught on almost overnight.

But did the spreadsheet steal jobs? Yes and no. It certainly put a sudden end to a particular kind of task — the task of calculating, filling in, checking and correcting numbers on paper spreadsheets. National Public Radio’s Planet Money programme concluded that in the 35 years after Mr Bricklin’s VisiCalc was launched, the US lost 400,000 jobs for book-keepers and accounting clerks.

Meanwhile, 600,000 jobs appeared for other kinds of accountant. Accountancy had become cheaper and more powerful, so people demanded more of it.

What does a robot accountant look like? Not C-3PO with a pencil sharpener, that’s for sure. One might say that Microsoft Excel is a robot accounting clerk. A more plausible answer is that there is no such thing as a robot accountant. One day we may have androids sophisticated enough to do everything human accountants do now, but by then the very concept of an “accountant” will have changed beyond recognition.

So it is misleading of me to write of “robots” taking “jobs”. What actually happens is that specific tasks are automated, rather than the broad bundle of tasks that together constitute a human “job”. Automating tasks means reshaping jobs. The process can create jobs or destroy them, and will usually do both.

In their recent book, The Future of The Professions (UK) (US), Daniel and Richard Susskind offer numerous examples of the spreadsheet dynamic in action: algorithms that scan mammograms and spot trouble that humans miss; online tutorials that monitor students and alert teachers to where the child is struggling; “document assembly systems” that quiz clients and then draft legal contracts.

Another example. If I didn’t have the use of email, internet search and a mobile phone, I would need to employ someone as a personal assistant. But I have had these tools for a long time, so I have never had a secretary. Should I have to pay the never-employed secretary’s tax bill, because I own a smartphone?

White-collar anxiety about automation is new, but the problem is old. Mike Mulligan and His Steam Shovel (UK) (US) is a Depression-era children’s book about technological obsolescence. (It is wonderful.) The steam shovel’s name is Mary Anne; she “could dig as much in a day as a hundred men could dig in a week”. So is Mary Anne a “digging robot” who destroyed 500 jobs? Yes; no; maybe. After a while the question seems ridiculous. Nor would many sensible people argue that Mike Mulligan, Mary Anne’s owner, be liable for 500 tax bills.

As any tax wonk can tell you, whatever we choose to tax — land, capital, profits, value-added, imports, wealth, greenhouse gas emissions — inevitably turns out to be a more ambiguous concept than it might appear, especially since ambiguity is often tax efficient.

But the category of “robot” is particularly difficult to define, and therefore to tax. We cannot tax the androids who march into our workplaces, stand by while we clear our desks, then sit down to replace us: they do not exist and it is hard to see why they ever would.

In a world of mass technological unemployment we are certainly going to need to tax something other than labour income alone. There are several plausible candidates. “Robots” is not one of them.

 

Written for and first published in the Financial Times on 6 July 2018.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now (or very very soon) in paperback – feel free to order online or through your local bookshop.

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Fifty Things That Made The Modern Economy – UK Paperback

I’m delighted to report that “Fifty Things That Made The Modern Economy” is out in paperback in the UK this week. (The US edition – Fifty Inventions That Shaped the Modern Economy – is out at the end of August. Sorry you have to wait…)

I had such fun writing this book and people seem to be enjoying reading it, which is great. One of the joys of the book was the ability to leap across time and topic, pick up under-rated technologies and explored the unexpected consequences of the things we invent.

“Packed with fascinating detail… Harford has an engagingly wry style and his book is a superb introduction to some of the most vital products of human ingenuity”, said the The Sunday Times.

“It’s great fun to dip into… Harford succeeds in teaching… without resorting to technical terminology and intimidating charts and tables. Such a feat requires a kind of inventiveness in itself.” That was the  The Wall Street Journal.

You can read more reviews and get more information about where to buy the book here.

30th of July, 2018Other WritingComments off
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