From the geeks who took over poker to the nuclear safety experts who want to prevent the next banking meltdown, these are my favourite long-form articles.
One June evening in the summer of 2002, the Shubert Theatre in Chicago played host to a new ballet/musical, Movin’ Out. The show was an unlikely collaboration between Twyla Tharp, a dynamic and challenging choreographer, and the songwriter Billy Joel. It was scheduled to open on Broadway that October, but the critics hated it, offering reviews varying from “stupefyingly clichéd and almost embarrassingly naive” to “pile-driving and ill-conceived”.
So enthusiastic was the criticism that the New York paper Newsday broke with tradition to reprint one of the choicer reviews, well in advance of the Broadway opening. It was left to Twyla Tharp, who had dreamed up the project and directed and choreographed it, to somehow fix the multi-million-dollar mess.
Tharp’s experience, as related in her book The Creative Habit, exemplifies the textbook response to failure: she took the criticism on board, made the necessary changes to her show, and opened on Broadway to glowing reviews. The show won two Tony awards, one for Tharp’s choreography.
The story of Movin’ Out is striking not just because it offers an inspiring narrative of adversity and triumph, but because this sort of transformation is unusual. The idea that one should bounce back from failures is an old one. King Robert the Bruce’s eventually successful war against the English is said to have been inspired by a persistent spider spinning a web in the cave where he was hiding. This was eight centuries ago, yet suddenly the idea seems fashionable – perhaps because there is a lot of failure to go round these days.
In the abstract, learning from your mistakes is an easy and uncontroversial idea. In practice, the whole, facile concept is shot through with difficulty. Who is to say that a mistake has been made? Are the lessons to be learnt really so obvious?
We approached public figures – entrepreneurs, artists, politicians and, of course, bankers – associated with spectacular setbacks of one form or another, asking them to explain what effect the failure had had on them. There were few takers, and one of the refusals – from the former chief executive of a failed bank – was particularly colourful. It seems that these redemptive stories of “learning from mistakes” are less inspiring from the wrong end of the steamroller. Continue →
New York Times Magazine – 15 May 2011 – Graphic by CÉSAR A. HIDALGO and ALEX SIMOES
These diagrams are the early fruits of a new approach to the most important unsolved problem of the last century: how to make a rich country out of a poor one. Development economists have many theories about how the trick is done but few proven answers. A compelling solution would be useful closer to home, too: understanding the process of economic development would help us work out whether it matters that service jobs are replacing manufacturing ones or whether there is anything the government can and should do to stimulate new industries like biotechnology or green energy.
Strip away the mathematical language of economists, and conventional theories of economic growth are rather crude. Economies produce “stuff,” and if you want more stuff to come out of the process, put more stuff in (like human capital, say). Yet economies do not produce stuff so much as billions of distinct types of goods — perhaps 10 billion, according to Eric Beinhocker of the McKinsey Global Institute — ranging from size 34 dark stonewash bootcut jeans to beauty therapies involving avocado. The difference between China’s economy and that of the United States is not simply that China’s is smaller; it has a different structure entirely…
Continued on NYTimes.com
“This game is going to end up like the tortoise and the hare,” Michael Lewis declares, halfway through his inaugural game of Saint Petersburg. Lewis’s green wooden pawn is well ahead on the board, but he’s already picked up enough of the game to realise that – to paraphrase one of the characters he describes in his book The Big Short – he’s about to get his eyeballs ripped out.
It is hard to understand quite why Lewis has agreed that I will teach him an obscure modern German board game while he is interviewed. Poker would have seemed the obvious choice. Liar’s Poker, Lewis’s description of the surreal Wall Street world he inhabited for two years as a bond trader at Salomon Brothers, was definitive of an era and, to some extent, of Lewis’s own career as a narrative writer. But Lewis isn’t interested.
“I haven’t played poker since I was in high school,” he says. “It would be false to portray me as a gambler. It bores me. It’s always bored me.”
Was that why he left Salomon Brothers to become a writer? “No. It was fun gambling with other people’s money. I liked that.”
In a small meeting room in a Mayfair hotel, the logistics are awkward: I can’t take notes and it’s hard even to talk because we’re concentrating on the board. Even a simple game can be baffling to a first-timer, and Saint Petersburg is not a particularly simple game. It describes the building of the city by Peter the Great and his minions (but the theme is very loose: the artwork depicts Czarist Russia).
Players buy cards which provide a flow either of roubles – the currency to buy more cards – or of victory points, which advance the player’s pawn and bring victory closer. There are four types of cards: aristocrats, who supply money and victory points and a bonus at the end; buildings, which supply victory points; peasants, who supply money; and upgrades, which improve the other three types. Returns on investment are very high, but there are never enough roubles to buy all the bargains on offer.
I am about to offer some opening hints when Lewis cuts me off. “Don’t tell me tactics. You don’t have to tell me. I’ll screw up. I’d rather just get beaten, and learn that way.”
We play in fits and starts, for the first half hour talking only about the game and its rules, before switching to Lewis himself while the game is forgotten for a while.
I’ve been reading The Big Short, his account of the men who bet against the subprime bubble, and express my baffled admiration at his ability to get inside the heads of his characters. One, the hedge fund owner-manager Michael Burry, gave him access to every e-mail he had ever sent. “God’s gift to the narrative writer was Michael Burry’s e-mail trove. He lived his life via e-mail.”
But how does he persuade people to give him such access?
“I never really thought about it. I’ve had so many people enter into the spirit of the arrangement. It starts with the relationship before it becomes a literary engagement. It’s a very long-term investment.”
The only time he’s had someone pull out after beginning such a relationship was with George Soros, whom he had accompanied on a private plane all over eastern Europe in 1994. Lewis published a magazine piece which suggested that Soros’s qualities as a philosopher were overrated.
“He was furious with the piece. It just said what I thought. Is it my turn?”
Lewis is fascinated at the revelation that Germany is the world’s board-game heartland. “This game is all about trade-offs … it’s made for the Anglo-Saxon Protestant work ethic. The Greeks would never appreciate it.” He tries to persuade me to write a piece about the German response to the euro crisis, using board games as a motif.
Although I am building a winning position, producing a flow of roubles that will in due course allow me to buy what I need to overtake Lewis, he understands what is going on. He knows why he’s going to lose. After I reap a particularly profitable investment, Lewis expresses alarm.
“Sorry,” I offer.
Talk turns to Lewis’s upbringing in New Orleans. His father had a largely hands-off philosophy, but begged Lewis not to turn down Princeton in favour of a life in New Orleans with his high-school sweetheart. “He went white and said, ‘I’ve never told you what to do, but don’t do this.’”
Lewis followed his father’s advice. “It was the right decision. But I really was in love with that girl, and it ended up ending our relationship. And I always felt I violated something in me, making that decision.” When the time came to quit Salomon, he steeled himself against any further paternal entreaties.
. . .
Explaining his decision to leave Salomon, he casually compares the $40,000 book contract to the $250,000 salary and potentially millions more – big sums in the late 1980s. But he insists that money does not motivate him.
“I grew up with a mother who came from a pretty wealthy family – in fact a very wealthy family by New Orleans standards – and my father was kind of a poor boy.” By the age of nine he’d abandoned any sense that money brought fulfilment, because “my father’s family was so happy and my mother’s family so miserable”.
Although there is outrage in Lewis’s descriptions of high finance, it is muted by the fact that he seems to regard much of life on Wall Street as risible. His former tutor at the London School of Economics, a certain Mervyn King, didn’t always see the funny side.
“Four or five months after I got the job at Salomon, the head of the London office comes over to me and says, ‘We’ve got this guy in the lobby. He’s the academic adviser to the new FSA, and he’s been sent in to see how the markets really work and nobody wants to sit with him. Could you sit with him?’ It was Mervyn.”
After three hours “listening to me selling people stuff”, King asked what Lewis was paid.
“It was two-and-a-half times what they were paying him to teach me at LSE. And he was, ‘This is just criminal, this is outrageous.’ He couldn’t believe it.”
I realise that Lewis has been hoping to overtake me, banker-style, by scooping a big bonus score at the last gasp, but he has missed a subtlety of the scoring and gets less than he hoped. He is, in any case, too far behind for any bonus to help him. The final score – 197 to 147 – is a comfortable win for me, but no disgrace to my pupil. We’ve been playing and talking for two hours.
“How do you feel?” he asks me.
“Pretty scummy, actually.”
“No that’s alright, that’s alright. I learned.”
Also published at ft.com.
Hinkley Point B is an ageing power plant overlooking the Bristol Channel. The location was once designed to welcome visiting schoolchildren, but is now defended against terrorists by a maze of checkpoints and perimeter fencing. At the heart of the site, which I visited on a mizzling, unseasonable day in late July, looms a vast grey slab of a building containing a pair of nuclear reactors.
Hinkley Point B began operating shortly before the doomed TMI-2 reactor at Three Mile Island in Pennsylvania, US, and is due to be decommissioned after 40 years of service in 2016. As parts of the plant are showing the industrial equivalent of crow’s feet, it runs at 70 per cent capacity to minimise further wear and tear. But when I asked EDF Energy, a subsidiary of one of the world’s largest nuclear energy companies, whether I could visit a nuclear facility to talk about safety, Hinkley Point B was the site they volunteered.
It might have seemed a strange choice on their part, but I was on a strange mission. I hadn’t come to Hinkley Point B to learn about the safety of nuclear energy. I’d come because I wanted to learn about the safety of the financial system. Continue →
‘The welfare of a nation can … scarcely be inferred from a measure of national income.’
So the US Congress was warned in 1934 by Simon Kuznets, who thus continued a long tradition of pointing out that there is more to life than money. But the economist’s comments broke particular ground: they were attached to the first serious attempts to produce national income accounts – the tally of all that a country produces and earns – for the US. Kuznets and his small research team had built them, and he knew their limits.
Where Kuznets led, others have followed. From the upper echelons of the administration of President Barack Obama to the offices of Nicolas Sarkozy, his French counterpart, to David Cameron, UK prime minister, the goal of gauging a nation’s wellbeing has captured the imagination of policymakers. They join less likely countries such as Bhutan, whose mission to measure “gross national happiness” has made the Himalayan mountain kingdom a trendsetter.
Mr Cameron was the most recent to take up the cause, saying Britain needed to look for alternative measures that would show national progress “not just by how our economy is growing, but by how our lives are improving; not just by our standard of living, but by our quality of life”. While some analysts suspect each politician has his own motives – appearing nice to electors, flattering the economy and so on – the result has been to create a sense of momentum behind happiness economics. Continue →
Illustration by Ingram Pinn
Anniversaries are a time for reflection and, as the third anniversary of the credit crunch approaches, I have been doing some reflecting on where I went wrong as an economist. My own errors, of course, are of particular interest only to me, but I fear that they are fairly representative of the economics profession. Continue →
Illustration by Ingram Pinn
It says a lot about the talents of John Maynard Keynes – and just as much about the shortcomings of modern macroeconomics – that when the financial crisis struck, policymakers instinctively reached not for their fancy models, but for the Keynesian idea of fiscal stimulus. These pages have been filled with eminent thinkers arguing over whether it is time to bring the stimulus to an end.
Perhaps we should turn the question around: if stimulus were to be the solution, what would be the problem? The problem would be that too many of us wanted to save money or pay off debts; that is, we wanted others to pay for our services but weren’t so keen on paying for theirs right now. Simple arithmetic suggests this would leave slack in the economy. In addition, the problem would be that businesses, pessimistic about prospects for recovery, didn’t harness all the spare savings floating around and plough them into new investment projects. The slack would stay slack, possibly for a long time. If that was the problem then government stimulus would be the solution.
And the above paragraph doesn’t seem to be a bad description of the US or UK economy, which suggests the case for stimulus is strong. True, the patience of the bond markets is surely not boundless (and say what you like about kowtowing to the markets, if we’d like them to lend us money we have good reason to care whether they are willing to lend it). And there already is an awful lot of stimulus spending going on right now, so it’s not absurd to suggest we could get by with less as the economy bounces back. I realise that I am sitting on the fence here, but it’s part of my new maxim, which is never to stand in the middle of a fight between Paul Krugman and Niall Ferguson.
Fiscal multipliers are certainly fun. If the fiscal multiplier is 0.5, we’re getting government projects at half price: the government project draws half its resources away from private-sector activity, but the other half is just soaking up slack. If the fiscal multiplier is 1.6, as President Barack Obama’s Council of Economic Advisers has estimated, we get a free government project and a larger private sector. And if the multiplier is 2.5, as Keynes believed of the US economy in the 1930s, government spending soaks up slack like a sponge, and also catalyses the private sector into a frenzy of action. (I beg your indulgence while you picture a slack-soaking catalytic sponge; patent pending.)
The quality of government spending still matters. If you think the multiplier is 2.5 then you can gladly follow Keynes’s suggestion of burying banknotes down mineshafts and leaving it “to private enterprise on well-tried principles of laisser faire to dig the notes up again”. If you think it is 0.5 or zero, you might want government projects chosen with more care. And as Keynes himself remarked, no matter what the multiplier, “it would, indeed, be more sensible to build houses and the like” if only politics would allow.
Keynes’s General Theory may well be a work of genius, but I have always been more attracted to his short 1930 essay, Economic Possibilities for Our Grandchildren, in which, in the teeth of the Great Depression, Keynes reminded us that the long-run trend was inexorable growth. “I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day,” he wrote. After 80 years, a world war, and a depression, citizens in the US and western Europe are about five times richer than when Keynes was writing. We seem to be on track.
Keynes’s essay explored something his modern disciples often ignore, namely what would happen when “the economic problem” was solved. By the standards of the 1930s, this problem has been solved. But our response has not been what Keynes expected. He acknowledged that human beings had an insatiable desire to feel superior to each other, and that some people would always blindly pursue wealth. But he felt that most of us would adjust, albeit grudgingly, to a life of plenty. We would work less and amuse ourselves in other ways. We have not, and civilisation continues to depend on the production, purchase, consumption and disposal of the kind of stuff you can see anywhere from the shelves of Walmart to the pages of How To Spend It. One of the multiple causes of the crisis, after all, was that so many people wanted to borrow more than they could repay.
It is true that we do choose to work a little less. According to the economists Mark Aguiar and Erik Hurst, despite a large increase in women’s participation in the workforce, in the US they have at least four hours a week of extra leisure compared with 1965. Men have at least six extra hours. And there is the time we spend studying and travelling before our careers, or in early retirement, to say nothing of the many hours spent goofing off at work and looking at Facebook. But if you want to work a three-day week, your boss and colleagues will assume it is because you are caring for a baby or studying for a PhD, rather than because the weather is lovely at this time of year.
So while the debate of the day is rightly about how quickly and how severely governments should tighten their belts, I hope that when the crisis is over we will remember to come back to Keynes’s long-run forecast. Keynesianism may be about trying to maintain full employment, but Keynes understood that full employment could mean everybody who wanted a job working up to three hours a day, at which frenetic pace we should still have twice the wealth of Keynes’s generation. It was in this future paradise that Keynes famously imagined that the economics profession might be thought of as “humble, competent people, on a level with dentists”. We economists have a way to go yet.