Tim Harford The Undercover Economist

Articles published in September, 2018

Review of The Cost-Benefit Revolution by Cass Sunstein

Given that The Cost-Benefit Revolution (UK) (US) has emerged from the pen of the co-author of Nudge (UK) (US) — the 2008 book that showed how to pull the levers of behavioural science to persuade us to eat less, save more and donate our kidneys — we should start with the obvious: this is a drier topic. Nevertheless, it is important — and, at times, Cass Sunstein manages to convince the reader that the word “revolution” is justified.

According to Sunstein, cost-benefit analysis asks, “What are the bad and good effects of imaginable policies? Will we save one life, 10 lives, or 1,000 lives? Will we impose costs?” In other words, cost-benefit analysis prompts us to judge policies not by whether they are popular or ideologically pure, but through technocratic scrutiny of quantified pros and cons.

It is hard to argue against this method in the abstract: who could be in favour of policies with small benefits and large costs? But when a specific policy is on the table, tempers are fraying and the political temperature is rising, many people will view cost-benefit analysis as foolish pedantry.

When Sunstein was running the White House Office of Information and Regulatory Affairs for Barack Obama, the White House rejected a regulation to control ozone and supported a regulation to control mercury. Environmental groups were perplexed: did Obama want to save the planet or didn’t he? Was there cynical political triangulation at play? For Sunstein, the answer is nothing so Machiavellian: ozone regulation was expensive and would do little good; mercury regulation was cheaper and would prevent a great deal of harm.

This example sums up the challenge for defenders of cost-benefit analysis: it’s important, but it is dull.

The book makes three valuable contributions: it relates the history of cost-benefit analysis in US policymaking ; it tackles the economist Friedrich Hayek’s argument that technocrats simply don’t know enough to weigh costs and benefits; and it makes a case that cost-benefit analysis could reduce political tribalism.

The history lesson is briskly delivered, and from a front-row seat — Sunstein worked in the Reagan White House as well as for President Obama. In 1981, Ronald Reagan signed Executive Order 12291, requiring administrative decisions to weigh the costs and benefits of action and maximise net benefits. This order, writes Sunstein, “placed the technocrats squarely in charge”, giving them the authority to reject pointless rules. Subsequent leaders, including Obama and Donald Trump, have taken a similar approach — although President Trump has added deregulatory flourishes that, Sunstein mildly comments, “are hard to defend”.

What of Hayek’s “knowledge problem”? Hayek’s objection to central planning is that it cannot work because the planners will never have enough information. Cost-benefit analysis is a kind of central planning, appealing in principle, but delusional in practice. Hayek memorably wanted economics “to demonstrate to men how little they really know about what they imagine they can design”.

Sunstein acknowledges the problem, but thinks the difficulty is exaggerated. Do we really know so little about costs and benefits that it is futile to even ask? He argues, plausibly, that the right response to Hayek’s warning is to regulate with humility rather than to give up. He argues that regulators should routinely seek comment, experiment, measure the effect of current rules and react if things can be improved.

Perhaps most intriguing is the book’s argument that cost-benefit analysis may help to reduce tribalism in politics. The method makes us reflect, consider the system as a whole rather than some salient part, ask good questions and notice where we do or don’t have good answers.

Of course, if cost-benefit analysis is to have these beneficial effects, we must first agree to use it. Perhaps we already have. The method was retained by every president since Reagan and is one of the few Obama-era principles that survived contact with the Trump administration. It works away, often unnoticed, in the heart of US government, and seems far more likely to do good than harm.

Perhaps there is hope that this quiet revolution will continue.

 
Written for and first published in the Financial Times on 17 September 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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28th of September, 2018Other WritingComments off

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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