Other Writing

Leaders do not need to milk price of pint

A few years ago, José Zapatero, then prime minister of Spain, was asked the price of a cup of coffee in a television interview. His answer, a woeful underestimate, became a minor embarrassment. I know all this because shortly afterwards, he appeared at a session of Congress with my book El Economista Camuflado [The Undercover Economist] under his arm – a book that discusses extensively (some say ad nauseam) the price of a cup of coffee. I was suddenly a prop in a surreal political debate.

Thanks to Nadine Dorries the same argument has popped up closer to home: George Osborne and David Cameron are posh boys, she says, who do not know the price of a pint of milk. To accuse them of knowing nothing of lacto-economics seems odd to me. I do not know whether Mr Cameron knows the price of a pint of milk. I do know that he is posh.

I am doubtful about the idea that there is, somewhere, the Platonic ideal of a pint of milk, whose just price is known by all virtuous people but an eternal mystery to the out-of-touch. The reality, of course, is that a pint of organic Jersey milk from a Hampstead deli is likely to cost more than a quarter of a two-quart bottle from Aldi. You will pay more for a pint delivered to your doorstep than if you take the trouble to drive to the supermarket.

Beyond that, you do not need to be a Tory millionaire not to care about the price of milk. I conducted a little survey. Steering clear of soya, rice and goat’s milk, I checked the price of a single pint of ordinary semi-skimmed. It’s 49p a pint in the Marks and Spencer at the local railway station. It is also 49p a pint at the downtown Sainsbury’s. It is 49p a pint in the Tesco next door.

The financial returns to learning about milk prices seem to be limited. There are people who are so strapped for cash – or perhaps, simply curious – that they will keep track. Many others will not, but that should not disqualify them for high office.

The converse also fails to hold: knowing the price of a pint of milk is no mark of a great leader. Before carrying out my survey, I guessed that the price of a pint of milk was 50p. Perhaps Nadine Dorries thinks that I would make a cracking prime minister. I can assure her I would be a profound disappointment.

Also published at ft.com.

Enough whingeing about price gouging

‘The latest advice is that there is no need to queue at forecourts or “top up your tank” as there will not be a strike over Easter. The [energy] department is also urging motorists to stick to speed limits to conserve fuel. ’
Financial Times, April 2

Good morning. How are you?

I’m distraught. No Easter egg for me last Sunday.

You’re joking.

It’s true. My wife went to a fancy patisserie to buy one, only to discover that they’d sold out. A cheap one would have done, to be honest.

They’re all cheap now.

They are. It’s puzzling, though. If it’s fine to cut the price of eggs when demand falls, why not raise the price when demand is high? Why didn’t the patisserie put up the price of their last few eggs, rather than sell out on Maundy Thursday?

I don’t think that would have gone down well. Price gouging, don’t you know.

I’d rather think of it as dynamic pricing. I realise people use pejorative terms to describe it, but we’d all be better off if certain products varied in price a bit more.

Example?

Well, last week we discussed water and proper metering and seasonal pricing as a rational alternative to hosepipe bans. Or petrol. Remember the petrol panic a couple of weeks back, when everybody rushed out to fill up their tanks, causing queues and shortages?

You think petrol stations should have whacked an extra 20p on the price?

Of course. Think about it. There was a sudden demand for petrol because of the fear of a strike and shortages.

It was a government-engineered panic.

It was, although the point is, the demand was purely precautionary. The actual need to drive around didn’t change. Some people whose cars were empty had to queue for hours, or even go without. Those who needed petrol would have been able to get 10 litres quickly and easily at the cost of an extra couple of pounds. Meanwhile, the people who late last month were topping up their tanks because – well, why not? – would have waited for prices to fall again. The petrol stations would have provided a valuable social service by charging more, as well as making money into the bargain.

The petrol stations that did raise prices were vilified.

They were, which shows that some people don’t know what’s good for them. The idea of the “just price” has a long history but very little economic basis. There are some theoretically sophisticated stories one can tell explaining why prices tend to stick, but the truth is that in most cases we’d be better off if they moved more. The latest toys wouldn’t all sell out at Christmas, there’d be fewer hosepipe bans, you wouldn’t need a lottery to allocate Olympic event tickets and I’d have been chowing down on an Easter egg last weekend.

Life doesn’t always respect your fancy economic models.

Indeed not, and thank goodness – although the laws of supply and demand are hardly fancy. But the fuss about price gouging really does make us worse off. There are two problems with prices that don’t rise quickly enough in the face of fixed supply and high demand. First, the goods may not reach the people who want them most. Second, even the lucky customers who get the cheap product may lose out because of the non-monetary costs of getting it.

Such as?

Such as queueing for hours to get the latest iPhone or a day pass to Wimbledon, for example. Many, surely, would happily pay a little extra to sidestep these wholly avoidable costs.

If this is such a brilliant idea, why don’t we see more of it?

The simple answer is because people hate it and call it price gouging. Why people hate it is another question and one to which there is no straightforward answer. The riddle deepens because some products are routinely sold using dynamic pricing and nobody complains – for example, seats on an aircraft.

It’s not true that nobody complains. You complain about Ryanair all the time.

Yes, but that’s because of the opaque drip-pricing, the unassigned seating and the lack of customer service. It’s not about the same type of seats at different prices. I have no problem with that idea and, curiously, I’ve never heard anyone else complain about it either. But if you tried to price Wimbledon tickets like that, there would be a riot in SW19.

Why, what’s the difference?

I have no idea. But at least I was able to feast on cut-price chocolate eggs all week.

Also published at ft.com.

Following in the footsteps of Larry Brilliant

I sat down for a chat with Larry Brilliant on Wednesday at the Skoll World Forum and interviewed him about the threat of global pandemics, something I’m hoping to write a column about. But, Larry being such a remarkable character, I also wanted to ask his advice on behalf of anyone who wants to make the world a better place. Some thoughts:

It starts with ordinary people. Ordinary people do extraordinary things, and then we lionise them. We make heroes out of them. And that’s a problem, because it makes other ordinary people look at these heroes and think that they can’t achieve the same things. But that path is open to everybody. Anybody at any time.

There’s more, and you can read the full interview at How To Make a Difference.

Inside the mind of Hans Rosling

We all love Hans Rosling, the world’s most famous data guru. Yesterday, at the Skoll World Forum, I interviewed him for More or Less on the BBC World Service, and loyal listeners and podcast subscribers will get to hear what we talked about in a week or two.

But before the tape started rolling I had a more intimate conversation with Hans about how he began his remarkable career, and what his influences and inspirations were. Here’s a taste; Hans was a 24 year old medical student, with top grades in Sweden, taking a study year in Bangalore:

“I saw the lecturer put up a slide for discussion, I thought, ‘that’s kidney cancer, I’ll keep quiet and let the Indian students talk before I explain’. In six minutes, they had exhausted all my knowledge. In those moments I realised the Indian students were better than me. I had always been in the top quarter. In Bangalore, I was bottom quarter. And that was when I realised how racist we all were, how we thought we were better because we had been born in a richer country, with better institutions.”

You can read the full interview over at How To Make A Difference.

Mr Speaker, let an economist speak sense!

“Order! Order! That concludes questions to the prime minister. Now, I have a quick procedural change to announce before the Budget speech. Technocratic leadership is all the rage these days so I have tied the Right Honourable George Osborne up in a cupboard and appointed an unsuspecting economist chancellor of the exchequer for the afternoon.”

Gosh, Mr Speaker, this is all a bit of a surprise. I’ve hardly had time to have a couple of stiff drinks before coming to speak to you all today, and I certainly haven’t had any time to look at the forecasts from the Office for Budget Responsibility. They’ll probably be wrong, anyway, so I hope you won’t mind if I move straight to the measures I plan to introduce. My fellow economists have lots of ideas and I suppose this is a good time to implement them.

My Budget is simple: short-term stimulus; long-term fiscal consolidation; and reform aiming at a sane system of taxation. This seems to be the precise opposite of what most of my predecessors had in mind, but they will get over it.

First, stimulus. Mr Osborne has been boasting of his plans to reduce taxes and spending simultaneously. This is precisely the opposite of what is required at a time of weak aggregate demand, and every bit as foolish as when Gordon Brown increased both taxes and spending in a boom. I will unveil a package of spending on roads, railways, primary schools in oversubscribed areas and social housing. In many cases this will simply mean implementing pre-existing plans, so the building work can start without delay. By utilising spare resources in the economy, this plan will stimulate demand and provide urgently needed infrastructure at a low cost to the wider economy. On the “stitch in time” principle it will also reduce the total need for public spending over the next decade and beyond.

Naturally, none of these schemes will seek private finance or other costly accounting gimmicks. Bond investors have shown a huge appetite for lending to governments outside the eurozone and it would be quite absurd to ignore this willingness to lend, especially when the long-term fiscal position of the UK would be enhanced as a result.

As an additional short-term stimulus, I will follow the advice of the National Institute of Economic and Social Research and temporarily scrap national insurance for the young and for low earners. This will encourage employers to take on, or keep, people who might otherwise be shut out of the labour market, with disastrous long-term consequences.

All of these measures will increase the deficit. None of them, however, will increase the structural deficit or make a material difference to the long-term debt profile of the country. Nevertheless, long-term fiscal consolidation is a challenge that must be met. I will start by breaking the stranglehold the elderly have on the public purse. The triple-lock commitment to steadily ratchet up the value of pensions was a promise that should not have been made. It will be abolished, as will expensive, arbitrary and poorly targeted perks, such as free television licences.

We care about the genuinely infirm and will implement in full the Dilnot Commission’s proposals to cap the costs of long-term care for the elderly, a policy that costs little, is fair and will do much good. But my government has no interest in transferring ever more resources from the young to an ever larger and healthier group of people who just happen to be older.

Further long-term fiscal consolidation will come from simplifying the tax system. I have been encouraged by Mr Osborne’s rhetoric on this subject, but less so by his specific plans, which at the time of his sudden disappearance involved: as many tax bands as ever; fresh complexities with child benefit; and differential treatment for the oil, pharmaceutical, aerospace, and video-game industries, for broadband infrastructure, renewable energy, low-emission cars, road hauliers and anyone or anything that is not a bank. In short, Mr Osborne thought tax simplification was all about the rate of value added tax on biscuits.

I disagree. I would seek to implement the advice of the Mirrlees Review – broadening the tax base, unifying national insurance with income tax, abolishing the majority of special treatments, aligning tax on income with that on capital gains and dividends, taxing property and land rather than taxing transactions, and in general treating the tax system as a whole rather than a messy patchwork. This is a major effort that promises major benefits.

Finally, I am sure this House will agree it has had quite enough of the Budget circus. It may be an enjoyable political platform but there is no economic justification for the annual kaleidoscope of trivia. Therefore, I propose that the next Budget speech not be made until 2015. I do not expect to be the person delivering it.

First published on FT.com

In defence of PowerPoint

I am about to do something rash, which is to disagree with Lucy Kellaway. Last week, the fearless observer of business follies went too far: she called for PowerPoint to be banned.

The prosecution’s argument is simple: many PowerPoint presentations are very bad. This is true but it hardly makes the case for a ban. Serviceable tools can produce awful results in the wrong hands, as anyone who has seen me put up shelves can attest. Banning the screwdriver is not the answer.

So it is with PowerPoint. It’s an unromantic, practical piece of kit. It is often used poorly. It is not the most elegant tool, but botched jobs must be blamed on the workman. Many of the bad presentations people deliver with the help of PowerPoint would have been bad presentations in any case. Would it have been better to hear the impromptu ramblings of a nervous speaker in total cognitive meltdown? Or to watch a piece of professionally produced but irrelevant film, in the dark? Many readers will remember corporate life before PowerPoint. It was no lost Eden.

PowerPoint is not the world’s most wonderful piece of software. The built-in templates have long been ugly, the clip-art tacky and the animations risible. As if determined to deliver on the name, it inserts bullet points into text with little provocation. It is harder than it should be simply to make all the letters line up. (I am still using PowerPoint 2003. By all means dismiss this column as the ranting of a corporate shill.)

Yet for all its flaws, PowerPoint performs two useful tasks well enough. It quickly allows one to compose speaking notes and to create slides showing images and graphs. The trouble starts when people confuse the two jobs.

There is nothing wrong with jotting down speaking notes as a memory aid. PowerPoint is as good a way of doing this as any, especially if you have handwriting like mine. For the vast majority of speakers, such speaking notes are preferable to the alternatives, including memorising, ad-libbing on the spot or writing the whole speech out and reading it in a wooden monotone.

The problem is that for some baffling reason, many speakers decide to project their speaking notes on to a wall rather than printing them out, postcard size, and sticking them on to 3×5 inch cards. I often sketch out my speeches with the help of PowerPoint. I just prefer to keep the slides to myself.

The second use of PowerPoint is to project visual aids on to a screen. This it does perfectly well – and the clichéd clip-art of yesteryear is now almost extinct. These days people “borrow” cartoons from Dilbert, or grab photos from the web. The effect is often pleasing enough.

It would be better if people learnt a bit about fonts, and better still if they learnt that by pressing “B” they could temporarily blank the screen. But one cannot have everything.

Lucy approvingly mentions a famous condemnation of PowerPoint by the brilliant information designer Edward Tufte. Professor Tufte attacks PowerPoint partly for its “relentless sequentiality, one damn slide after another” and partly for the asymmetric relationship between speaker and “followers”.

This is odd because Tufte does not acknowledge that he is really assaulting the idea of public speaking itself. What could be more relentlessly sequential than a speech? One damn word in front of another. If you hate the very idea of a speech, fine. But say so.

It would take little to improve greatly the quality of most people’s PowerPoint presentations – far less than it would take to improve the quality of corporate Newspeak. So why call for a ban?

The true problem is far more troubling. It is that in a corporate environment, we are asked to read prose by people who cannot write and watch performances given by people with neither the talent nor the training to perform. For some reason these amateurs are better paid than most writers and performers. There is something depressing about all this, but the blame cannot be pinned on PowerPoint.

I cannot finish without confronting the greatest sin in my version of PowerPoint: the “AutoContent” function, which sketches out a speech if you cannot do it yourself. AutoContent, The New Yorker once reported, was named as a joke, in “outright mockery of its target customers”. The very idea of the function is pernicious indeed but the real horror is that it was created to satisfy a demand.

Fortunately, that demand may have worked itself out, too: AutoContent was discontinued in 2007.

First published in the Financial Times, 25 July 2011

Regrets? I’ve had a few

Can failure really be a spur to success? By Tim Harford and Emma Jacobs
First published in FT Magazine 4 June 2011

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 →

Top 10 Economists on Twitter

Twitter’s top 10 economists (17 May 2011) (previously)
@CMEGroup Chicago Mercantile Exchange 783,327 followers
@NYTimesKrugman Paul Krugman, Nobel Laureate & columnist 594,331 followers
@andrewrsorkin Andrew Ross Sorkin, NYT Dealbook 372,242 followers
@freakonomics The Freakonomics blog 331,018 followers
@WSJ_Econ Real Time economics from the Wall Street Journal 214,778 followers
@planetmoney NPR’s Planet Money 191,244 followers
@umairh Umair Haque, HBR 146,450
@Richard_Florida Richard Florida, Urbanist 122,963
@PKedrosky Paul Kedrosky, Financial commentator 120,287 followers
@nouriel Nouriel Roubini, Economic forecaster 49,501 followers

Or follow the full Top 10 at this list.

Honourable mentions:
@dambisamoyo Dambisa Moyo, Aid Sceptic 43,063 followers
@evanHD Evan Davis, formerly BBC economics editor 30,500 followers
@DavidMcW David McWilliams, Irish popular economist 32,442 followers
@jeffdsachs Jeffrey Sachs, Columbia University 25,283 followers
@FelixSalmon Felix Salmon Finance blogger, Reuters 25,190 followers
@TimHarford Tim Harford, Undercover Economist at the Financial Times, 19,323 followers (that’s me)
@Paulmasonnews Paul Mason, economics editor of BBC Newsnight 14,029 followers
@Bill_Easterly Bill Easterly, New York University 13,947 followers
@danariely Dan Ariely, Behavioural psychologist 12,393 followers
@tylercowen Tyler Cowen, curator of Marginal Revolution 9,551 followers
@DavidMWessel David Wessel Wall Street Journal’s Economics Editor 9,867 followers
@crampell Catherine Rampell, Economix Blog editor 6,755 followers
@EconEconomics Economics news from The Economist 7,725 followers
@ritholtz Barry Ritholtz, blogger 7353 followers
@DLeonhardt David Leonhardt, New York Times columnist 5,246 followers
@EconTalker Russ Roberts, econ professor and host of EconTalk 3,761 followers
@cblatts Chris Blattman, Political scientist 3,934 followers
@B_Eichengreen Barry Eichengreen, economics professor 3,423 followers
@plegrain Philippe Legrain, author 2,323 followers
@diane1859 Diane Coyle, The Enlightened Economist 2,025 followers
@AndrewSimms_NEF Andrew Simms, New Economics Foundation 1,613 followers
@dsmitheconomics David Smith, Economics editor, Sunday Times 1,444 followers
@joshgans Joshua Gans, Professor of Economics and author of Parentonomics 987 followers
@dismalscientist Tweets from Moody’s Analytics, 943 followers
@tutor2u_econ Resources for economics teachers 849 followers
@leighblue Leigh Caldwell, behavioural economist 735 followers
@OlafStorbeck Olaf Storbeck, Economics editor, Handelsblatt 560 followers

Feel free to email [undercovereconomist AT gmail] or tweet [ @timharford ] with further suggestions. I’ll update this post from time to time. Comments are open.

===

Update: Can’t incorporate them all immediately but I have received these recommendations:
@deankarlan @rodrikdani @Shanta_WB @m_clem @BBCStephanie @ayittey @gdemom @delong @l_haddad @charlesjkenny @dannyquah @andypsumner @moss_d @vijramachandran @altmandaniel @went1955 @markthoma @mattbish @jodiecongirl @jappleby123

Lessons in adapting from the War in Iraq

I wrote this essay for the Freakonomics blog.

In the spring of 1980, President Jimmy Carter gave the go-ahead for a daring special-operations mission calledEagle Claw. Fifty-two American hostages had been trapped for months in Tehran under a newly hostile revolutionary government, and negotiations appeared to have broken down. The operation called for helicopters and refueling aircraft to fly into the Iranian desert at night, under the radar screen, rendezvous in the middle of nowhere, refuel, and hide during the daylight hours. The helicopters were then to fly into the heart of Tehran. Special forces were to kill or subdue resistance, liberate the hostages, and then – via another desert refueling rendezvous – escape to the USS Nimitz, an aircraft carrier off the Iranian coast. The operation suffered bad weather, bad luck – a busload of Iranian travelers blundered into the rendezvous point against all odds – and arguably bad decision-making. The mission was aborted half way through, a helicopter and a refueling aircraft crashed into each other at the rendezvous, and eight soldiers died.

The counterinsurgency specialist Andrew Exum drew my attention to the Eagle Claw failure after special forces killed Osama bin Laden: the circumstances were superficially similar but the results were very different.

“I’m thinking Tim should add our special operations forces as a case study in time for the paperback,” Exum wrote, nodding toward my book. “You cannot understand why the U.S. military was able to execute this extraordinary operation deep in the heart of Pakistan without first understanding the failures of Iran in 1980.” Continue →

The aeroplane that saved the world: an extract from Adapt

In 1931, the British Air Ministry sent out a demanding new specification for a fighter aircraft. It was a remarkable document for two reasons. The first was that throughout its existence the Royal Air Force had been dismissive of fighters. The conventional wisdom was that bombers could not be stopped. Instead, foreshadowing the nuclear doctrine of mutually assured destruction, the correct use of air power was widely presumed to be to build the largest possible fleet of bombers and strike any enemy with overwhelming force. The second reason was that the specification’s demands seemed almost impossible to meet. Rather than rely on known technology, the bureaucrats wanted aviation engineers to abandon their orthodoxies and produce something completely new.The immediate response was disappointing: three designs were selected for prototyping, and none of them proved to be much use. The Air Ministry briefly went so far as to consider ordering aircraft from Poland.Even more remarkable than the initial specification was the response of the ministry to this awkward failure. One of the competing firms, Supermarine, had delivered its prototype late and well below specification. But when Supermarine approached the ministry with a radical new design, an enterprising civil servant by the name of Air Commodore Henry Cave-Browne-Cave decided to bypass the regular commissioning process and order the new plane as “a most interesting experiment.” The plane was the Supermarine Spitfire.

Continued at Slate – or find out more about the book.