Tim Harford The Undercover Economist

Undercover EconomistUndercover Economist

My weekly column in the Financial Times on Saturdays, explaining the economic ideas around us every day. This column was inspired by my book and began in 2005.

Undercover Economist

Is life a bet, or an experiment?

Since the official Brexit policy of the UK government now seems to be “accidents happen”, it is a nourishing age for those who dine on uncertainty. Most of us, however, started feeling queasy long ago. If you’re looking for guidance as to how to digest the unpredictabilities of life, why not turn to a poker player for advice?

Annie Duke, author of Thinking In Bets (UK) (US), says that “wrapping our arms around uncertainty and giving it a big hug will help us become better decision makers”. Fair enough. If we’re going to have to eat our uncertainty broccoli anyway, it may be best to swallow it down before it goes cold and limp.

As the winner of several million dollars as a professional poker player, Ms Duke has some credibility on this point. But is she right?

One quibble is that games have a more tightly-defined spectrum of uncertainty than reality does. Edward Thorp, a mathematician who achieved considerable success at blackjack and as a hedge fund manager, found (UK) (US) that the true risks he faced in the casinos were not an unlucky turn of the card, but crooked dealers and poisoned coffee. Not for nothing does Nassim Taleb, author of The Black Swan (UK) (US) warn of the “ludic fallacy” — treating the unknown risks of life as though they were the known risks of a game of chance.

Still, poker is a more instructive game than many others. John von Neumann, the brilliant mathematician who laid down the foundations of game theory in the late 1920s, was a poker player. Poker was no mere computational problem like chess, he said: “Real life consists of bluffing, of little tactics of deception, of asking yourself what is the other man going to think I mean to do, and that is what games are about in my theory.”

So what does poker teach us about “wrapping our arms around uncertainty”? Ms Duke offers us several lessons.

One is that, since luck matters as well as skill, bad decisions can have good outcomes, and vice versa. If you drive drunk, you will probably get home without killing anyone, but that would not make drunk driving a good decision.

A second lesson is that we should always be willing to ask ourselves, “do I want to bet on that?” — it’s easy to be overconfident if there are no obvious consequences for being wrong. A bet forces us to think about the odds and the possibility that someone else may know better.

So there is much to be said for thinking in bets. Yet we should not overlook an alternative approach to uncertainty: thinking in experiments. An experimental thinker views the uncertainties of the world as something to be resolved through tentative trial and error. Try something modest or reversible; an experiment doesn’t need to be a double-blind, randomised controlled trial to yield useful information. If it works, do more of it.

Some decisions are by their nature irreversible. Each big poker hand is a one-shot proposition that does not offer much scope for experiment. The same could be said of some investments: if you think shares in Tesla are cheap, there is little to be said for buying just one share and watching it to find out what happens to its price. An experiment cannot help; instead you must figure out whether the odds are in your favour, and take the plunge.

But other decisions are more experimental. In these cases, the choices can be made in stages, with each step designed to reveal some information. From Marvel’s decision to publish the Spider-Man comics (that went well) to Google’s launch of the G+ social network (that didn’t) a company can see what works and then either redouble its efforts or abandon the project. For an individual, anything from a new hobby to a new career can be treated as an experiment.

Many of the decisions we make are reversible. Only our stubbornness makes them permanent. Thinking in bets forces a commitment, which is sometimes helpful but sometimes not. Thinking in experiments allows us to learn.

I thought of all this when reading of poker professional John Hennigan’s $30,000 bet that he could move to Des Moines, Iowa, and live there, just for a few weeks. As Ms Duke tells the story, Mr Hennigan was bored out of his mind within days, and paid $15,000 to buy himself out of the bet and move back to Las Vegas. That’s thinking in bets at its worst: an idle thought (“should I move to Des Moines?”) became a high-stakes zero-sum game. Fun — if you like that kind of thing.

A few years ago, my family were agonising over a similar question (“Should we move to Oxford?”). We vacillated and made lists of pros and cons. What resolved the uncertainty was realising the decision could be an experiment: rather than selling up, we could rent a place in the city for a year to see how things worked out. Running this experiment created some additional costs, but we have never regretted doing it.

Thinking in bets is a rigorous and admirable habit, but not everything has to be a high-stakes poker hand. If you can make it work, thinking in experiments is less painful.



Written for and first published in the Financial Times on 15 Feb 2019.

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Why inflation is good for us

Not long ago, I wrote a column in defence of central banks. Some readers were quick to disagree. Central banks had failed to maintain “the real value of our fiat currencies”, wrote one, urging me to ponder how inflation had eroded the true value of savings over the decades.

A glance at Venezuela, where inflation over the past year has been more than 100,000 per cent and the economy is breaking down, reminds us that this is no idle complaint. Central banks must keep inflation under control. But what does “under control” mean? How much inflation is too much? And — a question only an economist could ask — how much inflation is too little? It goes without saying that hyperinflation is an economic catastrophe, so the first thing to check is whether hyperinflation is likely in an advanced economy — or indeed a competently governed country of any sort. It is not.

In 2012, economists Steve Hanke and Nicholas Krus assembled a list of every confirmed episode of hyperinflation in history. There weren’t very many: 56 in total, mostly in the 20th century, to which we might add recent outbreaks in Zimbabwe, Iran, Venezuela and perhaps North Korea. France suffered a bout in the 1790s, but most instances of hyperinflation occurred either in central European states after the first world war (including the infamous crisis in Weimar Germany), or during or immediately after the second world war (including Hungary, history’s worst example of hyperinflation), or in the eastern bloc as the Soviet Union disintegrated.

Hyperinflation does not strike at random, and it does not happen because central banks briefly slumber. It must be manufactured by the relentless printing of money, generally as the last resort in the face of political dysfunction alongside a severe fiscal crisis. Perhaps it is rash to say so, but I think we can set aside fears of hyperinflation in an advanced economy today. If it ever does happen, it will be only one element in a far more comprehensive economic disaster.

But the readers who emailed to complain about inflation did not express concerns about hyperinflation. They are worried about low-level ambient inflation, the kind that central banks not only tolerate, but actively seek. Central banks do not try to maintain “the real value of our fiat currencies”, but to erode them, typically by 2 per cent a year. They have often been explicitly instructed to do so by elected politicians.

Are those instructions wise? Even 2 per cent inflation will halve the value of money in 36 years. That seems bad, but let’s try to pin down why it might matter. It may help to remember what it is that we expect any good currency to do.

First, we want it to serve as a medium of exchange, allowing me to pick up a loaf of bread without having to persuade the baker to swap it for a copy of The Undercover Economist Strikes Back. Inflation at 2 per cent a year — or 5, or even 20 — does not prevent money serving as a medium of exchange.

The second, and perhaps most fundamental, role of money is as a stable unit of account. It helps us understand the economic forces around us, whether a particular product is expensive or cheap, without resorting to a calculator. Hyperinflation destroys that. “Are we ruined or in clover?” asks a character in an Erich Maria Remarque novel set in the Weimar hyperinflation. No one knows. But moderate inflation will not boggle minds on a trip to the shop.

Inflation does more obvious damage to money’s third role, which is as a store of value. If you stick your currency under the mattress then inflation will hurt you. It will also hurt if you have a non-indexed pension, or cannot find a high-interest savings account. Normally, however, a well-functioning financial sector offers returns to compensate for inflation.

That has not been the case since the 2008 financial crisis, of course. But the pain savers are feeling is not because central banks have carelessly let inflation take off. It is the result of a deliberate policy of low interest rates to stimulate spending and investment. Perhaps this policy is a mistake, perhaps not. But it would be wrong to view it as a dereliction of duty.

Another source of pain is governments’ fondness for using inflation as a way to grab a bit more revenue, by taxing nominal interest payments. It’s an insult for savers, but let’s be realistic: the tax would be levied somehow anyway. Inflation is sometimes the taxman’s chisel, but he has other tools.

It is surprisingly difficult to find any serious costs to low levels of inflation. In contrast, the benefits are easily stated: more room to stimulate the economy in a recession, and more room for real wages to adjust if they must. Olivier Blanchard, during his time as chief economist of the IMF, even floated the idea that the inflation target should be 4 per cent, not 2 per cent. He is by no means alone in that opinion. Like a low dose of aspirin, a low dose of inflation is unlikely to do much harm — and it can prevent an economic heart attack.


Written for and first published in the Financial Times on 8 Feb 2019.

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How high should the top rate of tax be, and who should pay it?

What should the top rate of income tax be? Should it be 70 per cent, as has been informally suggested by the young star of the US Democratic party, Congresswoman Alexandria Ocasio-Cortez? That instinctively feels too high to me. But, as an economist with sporadic hopes of making logical arguments based on evidence, I admit that “instinctively feels too high” is a weak response.

What about 50 per cent, the official policy of the UK’s opposition Labour party at the last general election? Or zero, the optimal top rate that emerged from a thought experiment posed by the late James Mirrlees, a Nobel laureate in economics?

An alternative is to tax wealth instead of income, as US Democratic Senator Elizabeth Warren has proposed. But — at least in principle — there is not much difference between a small annual tax on total wealth and a large tax on the nominal return generated by that wealth.

To make the case for a top rate of tax above 70 per cent, it helps to believe four things.

The first is that taxable income itself won’t evaporate in the face of a high rate, as it did in the UK when the top tax rate was briefly raised from 40 to 50 per cent in 2010, then cut to 45 per cent. Most high earners found it easy to realise income early, or late, and avoid the 50 per cent rate. A permanent increase is harder to avoid; so is an increase that is enforced with determined (or draconian) measures; as is an increase levied by a large economy with global legislative reach such as the US. In smaller economies such as the UK’s, the very rich are more likely to take themselves elsewhere for any given tax rate.

One academic paper produced by Emmanuel Saez (a star in the study of inequality) and Peter Diamond (a Nobel laureate and colleague of Mirrlees) estimated that the combined rate of tax on the income of high earners could be 73 per cent in the US without proving counter-productive. Another paper, published in the same journal, by Gregory Mankiw and co-authors, put the optimal top rate at just under 50 per cent instead. The difference lies in the assumptions.

The second thing one needs to believe is that the rich will barely miss any extra income if tax rates rise. The truth of this is unknowable, although another famous study from yet more Nobel laureates, Daniel Kahneman and Angus Deaton, suggests that money will not improve your everyday mood and wellbeing after an income of $75,000 a year or so. To reach their conclusions about the 73 per cent rate, Professors Diamond and Saez assume that a dollar is 25 times more valuable to a person on about $50,000 a year than to a person on $500,000. That is not an insane assumption, but it’s an assumption nonetheless.

If you accept these first two beliefs, the economic case for a high top rate of tax follows. A high rate maximises revenue if the tax base doesn’t shrink too much, and revenue maximisation is a reasonable goal if it’s true that the rich would barely notice the lost income.

But this argument ranges far beyond economics. If you like high tax rates, the third thing it helps to believe is that inequality is intrinsically corrosive. Perhaps it undermines democracy. Perhaps it causes stress, envy or resentment. The empirical evidence is not much help here; it is sketchy and often seems tendentious. Causal channels are unclear: does inequality lead to a hollowed-out state? Or does a hollowed-out state enable inequality? Perhaps a thought-experiment is more helpful here: how would you feel about a policy that simply confiscated resources from the super-rich and destroyed them? Would such a policy be a criminal waste and a grotesque infringement of liberty, or a helpful rebalancing of the scales?

Then there’s a fourth, often unstated, belief: that the rich have so much money that a high rate of tax will raise serious revenue. That depends on who you regard as “rich”. Ms Ocasio-Cortez mentioned a threshold of $10m. Profs Diamond and Saez focused on the highest earning 1 per cent of taxpayers, implying that the band would apply above around $500,000 a year. The Labour party wanted its highest rates to apply on incomes over £100,000.

These are very different definitions of “rich” and they have very different implications for revenue. For example, Ms Ocasio-Cortez’s income threshold of $10m is higher than that required to get into the top 0.01 per cent of the US income distribution: about 16,000 families. This tiny slice of the US population receives a less-than-tiny 5 per cent of total US income — which nevertheless implies that 95 per cent of income is earned by those making less.

The super-rich are a tempting target, but a serious attempt to raise revenue cannot stop with them. Whether we are talking about income or wealth, the lion’s share lies not with the billionaires but with the comfortably off. It is nice to talk about taxing somebody else’s money, but in a world of chronic budget deficits and worsening demographics, the ethics and economics of higher tax rates are unlikely to remain someone else’s problem.

Written for and first published in the Financial Times on 1 Feb 2019.

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“Blue Monday” pseudoscience should teach us to be more curious

Given that it is the purest bullshit, the “Blue Monday” meme is showing surprising longevity. While the US this week celebrated Martin Luther King Jr day, the British were reading about what purports to be the most depressing day of the year.

The fantasy that the third Monday of January is Blue Monday was dreamt up by Sky Travel, a holiday company that no longer exists. It is based on an equation linking weather, debt and other factors that is transparently absurd, and was given the faintest air of academic rigour by being endorsed by a psychologist with the title “Dr”. This scheme to sell more package holidays was launched in 2005 — 14 years ago, for goodness’ sake — and is still being used to sell package holidays.

It endures despite some blistering reporting from Ben Goldacre, a psychiatrist, writer, and researcher in evidence-based medicine. A single internet search, a moment’s glance at Wikipedia, should be enough to give anyone pause before citing Blue Monday. Yet we continue; it seems we can’t help ourselves.

Blue Monday is particularly popular, but it is by no means the longest-lived myth. I’ve seen lies about EU cabbage regulations that date back to the mid-20th century and were originally lies about the US government: six or seven decades of misinformation, circulating under the radar to pop up again in the age of social media.

Why do such ideas endure? What do they tell us about our attitude to science, evidence or the truth itself?

The obvious response is that we are too credulous: we’ll believe anything. I’m not so sure. There are plenty of things we should believe, but which many people do not — for example, that Neil Armstrong walked on the moon, that smoking dramatically increases the risk of lung cancer, that carbon dioxide emissions are changing the climate, and that routine vaccines are far more likely to prevent harm than cause it. The risk of believing anything must be weighed against the risk of believing nothing.

In the case of Blue Monday, the basic problem seems to be that nobody cares enough to ask a couple of simple questions. When “experts” “officially” say that it is a depressing day, which experts? What reasons do they give for making the claim? One or two clicks on a search engine reveal the answer: no experts believe this and no good reason has ever been given.

But in the case of climate change or vaccine denial — or, dare I say it, the curious belief in numbers written on the side of a big red bus — the problem is not that nobody cares. It is that people care passionately. They care so passionately that they will go to great lengths to dismiss contrary evidence. The scepticism isn’t lazy; it is energetic. And it’s something we should recognise in ourselves: who can honestly say they have never flipped a newspaper page, turned over the channel, or found someone else to talk to at a party, in search of an opinion that we can agree with?

So should we be more trusting, or more sceptical? Onora O’Neill, whose 2002 Reith Lectures were on the subject of “trust”, sharpens the question — as we might hope a philosopher would. Rather than trying to measure or increase some vague measure of “trust”, she says, we should be aiming for a better ability to trust what is trustworthy and to mistrust what is not.

Restoring trust in the claims of science, statistics, or expertise — while stoking a healthy scepticism of snake oil and pseudoscience — is not something that can be left to any one part of society. If experts — and for that matter, journalists — wish to be trusted, they must provide evidence of their trustworthiness. But the non-experts among us could also do more to keep ourselves well-informed.

How you demonstrate trustworthiness depends on who you are and what you hope to be trusted to do. A good starting point is the list of principles for “intelligent openness” set out a few years ago by the Royal Society in a report, Science As An Open Enterprise. (Baroness O’Neill was one of the report’s authors.)

Intelligent openness requires that the data used to make scientific claims are accessible, understandable, usable and assessable. “Accessible” implies publication online at minimal cost. “Understandable” means claims made in plain language, as clearly as possible. “Usable” may mean supplying data in a format easily analysed by computers, and it also suggests that the conclusions be framed in a way that is relevant to everyday concerns. “Assessable” means that anyone with the time and expertise has the detail required to rigorously test the idea if they wish.

That is something scientists, statisticians, economists and other “experts” can do. What the rest of us owe them — and more importantly, owe ourselves — is to ask a few questions before we spread an idea on social media or rely on it to govern our votes, our diets, or our attitudes to each other.

One or two smart questions, or a moment double-checking with an internet search — that is often all it takes to provide the context we need to make a wiser judgment. It shouldn’t be too much to ask of ourselves.

Written for and first published in the Financial Times on 25 January 2019.

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Lessons from the wreck of the Torrey Canyon

On Saturday March 18 1967, around half past six in the morning, the first officer of the Torrey Canyon realised that his vessel was in the wrong place. The 300-metre ship was hurrying north past the Scilly Isles, 22 miles off the tip of Cornwall in the south west of England, with more than 119,000 tonnes of crude oil. The aim was to pass west of the islands, but the ship was further east than expected.

The officer changed course, but when the sleep-deprived captain Pastrengo Rugiati, was awoken, he countermanded the order. A two-hour detour might mean days of waiting for the right tides, so Capt Rugiati decided instead to carry on through the treacherous channel between the Scilly Isles and the mainland.

Most serious accidents have multiple causes. A series of mistakes or pieces of bad luck line up to allow disaster. The Torrey Canyon was hampered by an unforgiving schedule, barely adequate charts, unhelpful winds and currents, confusion over the autopilot, and the unexpected appearance of fishing boats in the intended course. But reading Richard Petrow’s contemporary account of the Torrey Canyon disaster, a clear lesson is that Capt Rugiati was too slow to adjust. He had a plan, and saw far too late that the plan was doomed to failure — and with it, his ship.

Some accident investigators call this “plan continuation bias”. Airline pilots sometimes call it “get-there-itis”. The goal appears within touching distance; it’s now or never. Tunnel vision sets in. The idea of a pause or a change of approach becomes not just aggravating, expensive or embarrassing — it becomes literally unthinkable.

In such circumstances aeroplanes have crashed after trying to land in bad weather because the destination airport was so temptingly close. Patients have died of oxygen starvation because doctors and nurses fixated on clearing blocked airways rather than checking whether an oxygen pump was working. And the Torrey Canyon ran aground, producing the world’s first major oil tanker disaster.

We’ve all experienced “get-there-itis”. For me, it tends to emerge when dealing with family logistics. One child needs to go somewhere, another must be picked up from school. Then it turns out that someone needs to be at home to receive a delivery; the car is in for a service; the babysitter calls to cancel.

The plan seems feasible at first, but as complications mount, it starts to resemble an increasingly precarious assembly of stages and steps, lift-swaps and rendezvous, a Rube Goldberg fever-dream of an itinerary. If I’m lucky, someone finds the mental space to see clearly the fragility of it all. Someone suggests a cancellation or two, replacing the entire time-and-motion nightmare with something radically simpler.

It’s that moment of clarity that is so often missing. Haste makes things worse, as when La La Land was mistakenly announced as the winner of the Oscar for best picture two years ago. When Warren Beatty opened the envelope he’d been given at the Academy Awards ceremony, live on stage in front of Hollywood’s most powerful stars and a TV audience of tens of millions, what he saw in front of him didn’t make a lot of sense. That was because he’d been given the wrong envelope.

With hindsight he should have walked off stage and asked for clarification — but of course, he felt under pressure to continue with the plan, which was to read whatever was in the envelope. In the end it was his co-host Faye Dunaway who blurted out the wrong film name; she had even less time than Mr Beatty to stop and think.

Is there a solution? In their book Meltdown (US) (UK), Chris Clearfield and András Tilcsik argue that even in fast-moving situations, successful teams will find a way to check on each other and reassess the situation. The simpler solution, although it is not always possible, is to slow down.

For those of you wondering whether this column is really about Brexit, you may draw your own conclusions. But Theresa May— who at the final hurdle has managed to get her signature policy crushingly rejected by the UK parliament — is not the only one who has been suffering from get-there-itis.

Her opposite number Jeremy Corbyn, the leader of the Labour party, is obsessed with winning the snap general election that he has no power to call. The hard Brexiters are so fixated on an immediate and extreme Brexit that they seem happy to risk disgrace if they succeed, and no Brexit at all if they fail. The EU’s negotiating triumph may yet be a pyrrhic victory. Even the pro-European parliamentarians, with whom I have considerable sympathy, are now fumbling as they scramble for the contradictory goals of a soft Brexit or another referendum. For each faction, the goal seems so close, the blinkers go on, and the ship hits the rocks.

In an attempt at damage control, the Torrey Canyon was bombed by the Royal Navy. The thickest oil slicks ended up on the beaches of France. Make of that what you will.

Capt Rugiati was haunted by his failure — a broken man, cowering from press attention. If only he’d taken the time to slow down and think again.

Written for and first published in the Financial Times on 18 January 2019.

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Trump, May and the necessary art of brinkmanship

Brinkmanship is an old idea, but not such an old word. It was first used in 1956, after US Secretary of State John Foster Dulles opined that “the ability to get to the verge without getting into the war is the necessary art . . . if you are scared to go to the brink, you are lost.”

Adlai Stevenson, the Democratic presidential nominee, began to use the term “brinkmanship” in response. He did not intend it as compliment.

Yet we find ourselves surrounded on all sides by leaders who think they have mastered this “necessary art”. The stakes are blessedly lower, but still high enough to deserve examination. In the US, Donald Trump has failed to deliver on his promise to get Mexico to pay for his border wall, and has partly shut down the federal government until Congress agrees that the US taxpayer will fund it instead. Voters will reach their own conclusions as to who is to blame.

In the UK, Theresa May wants parliament to vote for the unappetising Brexit deal she has negotiated with the EU. She offers two simultaneous and mutually exclusive threats, confronting hardliners with the prospect of no Brexit at all, while warning the EU and British moderates that there will be a chaotic “no deal” outcome instead.

Whether we are talking about Brexit, a border wall, or the early stages of the Vietnam war, each situation is different. Yet it is worth pondering similarities in the structure of the problem.

These threats may seem empty. Dulles did not want nuclear war. Mrs May does not want six-day-long traffic jams on the way into Dover. Nevertheless the threat may be made credible enough to achieve results. How?

One option is to use a doomsday machine, made famous by Stanley Kubrick’s dark comedy Dr Strangelove. The doomsday machine is credible because it is automatic. It cannot be switched off, only obeyed. The risks are obvious; in the movie, the doomsday machine destroys civilisation.

Mrs May’s doomsday machine was the Article 50 divorce process, which we were told could not be halted once begun. Without parliamentary approval of a deal, this legal doomsday machine would deliver a disruptive no-deal by default. Triggering Article 50 weakened the prime minister’s negotiating hand with the EU but strengthened it when dealing with those MPs who seem open to reason.

Yet it now transpires that the machine has an off-switch after all. The UK government can simply revoke its notification to leave. Mrs May therefore managed to hobble her bargaining position with the EU while leaving herself hostage to her own party.

The second tactic for gaining credibility is the “madman” strategy: if you are insane, or can fake insanity, then insane threats seem plausible. The strategy was flawlessly executed by Sheriff Bart in the film Blazing Saddles, who managed to escape being lynched by racists by threatening to shoot himself. That achievement is hard to replicate, though. As Bart tells himself, “you are so talented. And they are so dumb!”

Mr Trump is erratic enough to make the madman tactic seem plausible, although he has also frequently backed down. Mrs May does a good line in stubbornness, and is trying hard to make a chaotic no-deal seem as if it is an inescapable force of nature, like an earthquake or a flood. Yet it seems unlikely that she would embrace the chaos when, with a stroke of her pen, she could call it all off. Some leading Brexiters, however, have perfected the madman pose; they’ve convinced me that they simply do not care. Perhaps I’ve been fooled by a brilliant bluff. Perhaps.

There is a third way to make threats credible: create the risk of an accident. Thomas Schelling, cold war strategist and Nobel laureate economist, described handcuffing yourself to your opponent then cavorting on the edge of a cliff. You’re not suicidal, but you are willing to create the risk that things will go terribly wrong. If your counterpart fears that risk more than you, you may extract concessions.

As Schelling and his fellow strategists knew, in situations such as the Cuban missile crisis there was always a risk that something would get out of hand, and all of us would slip off the cliff together. It was this that made world-ending threats plausible.

If you are finding all this discomfiting, you are not alone. Somehow we have managed to produce a situation where democratically elected politicians are threatening substantial harm to their own countries as a bargaining tactic. The tactic is credible because accidents happen. At least we can comfort ourselves that long-range bombers are not involved.

How did we get here? Recall the final scene of Dr Strangelove. With Armageddon inevitable, Strangelove reassures the all-male leadership of the US that they could survive in underground cities. The survival of the human race would be ensured by a ratio of 10 “highly stimulating” women to each man. Everyone seems rather cheered by this thought.

Brinkmanship does not work if it does not create a risk of harm. Yet the people practising the strategy may not be the ones who will experience it.


Written for and first published in the Financial Times on 11 January 2019.

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Why there is no need to panic about fake news

A new year’s resolution for all: stop talking about fake news. Perhaps we should have stopped talking about it at the same time as we started. That, according to Google Trends, was the week after Donald Trump won the US presidential election in 2016, which suggests the interest was driven by astonished people looking for an explanation. Fake news was not the only scapegoat but it was, and still is, a popular one. It was even named the Word of the Year in 2017 by Collins Dictionary. Yet the phrase has long since ceased to be useful, and here are five reasons why.

First, fake news doesn’t mean anything — or rather, it means so many different things to different people as to be bewildering. Focus group studies conducted by the Reuters Institute for the Study of Journalism found that people placed various things under the “fake news” umbrella, including annoying pop-up advertisements, politicians making misleading claims, and newspapers with a political slant.

None of these match the original definition of fake news — at least, as I understand it — which referred to stories that were invented to win advertising clicks and impersonated or parodied genuine journalism. The most famous example was when the Pope was “reported” to have endorsed Mr Trump’s presidential candidacy.

Such stories were widely shared, and while some claimed to be humour or satire, the basic motive was monetary. It is cheap to invent lies, and eye-catching lies are a reliable source of clicks and thus advertising dollars. No wonder journalists became irate: for so many outlets, real news had become unprofitable yet fake news is a money-spinner.

But for all the people determined to believe that the Pope’s fictional endorsement had swung the election for Mr Trump, there is little evidence that it — or similar clickbait fabrications — did any such thing. While the most popular fake stories were shared at least as widely as the most popular true articles, that is partly because the fakes were unique while each true article had dozens of imitators or parallels.

A study conducted by economists Hunt Allcott and Matthew Gentzkow found that fake news simply wasn’t as widely shared, seen or remembered as many people think. Close as the 2016 election was, it is unlikely that these stories swung it.

That is the second reason to steer clear of the fake news phrase: in its original form it is aggravating and, occasionally, has constituted incitement to serious violence. But despite a certain degree of moral panic, fake news itself does not pose an existential threat either to democracy or the free press.

What does pose such a threat is a draconian response from governments. Is that likely? The fact-checking organisation FullFact has described the response of some governments, internet and media companies as “frightening over-reactions” — although it adds that the UK government has so far avoided rushed or illiberal measures.

It is all too easy to turn legitimate concerns about false information into a situation where the government decides what can be said and who can say it. We need to be careful that the cure is not worse than the disease — a third reason to avoid panicking about fake news.

The fourth reason is that Mr Trump, with his twisted genius for turning a complex issue into a political cudgel, has deployed the term to demonise regular journalists. Given the number of journalists murdered around the world, including in the US, one might hope for some restraint from the president, but in vain.

Other politicians have also embraced the phrase, including UK Prime Minister Theresa May and Labour party leader Jeremy Corbyn. I worry about a world in which many people believe lies, but I worry far more about one in which many people instinctively refuse to believe the truth.

Here is the final reason to calm down about fake news: it feeds into the tempting but smug assumption that the world is full of idiots. People are sometimes taken in by lies, and some spectacular falsehoods have gained more traction on social media than one might hope.

But if we persuade ourselves that Mr Trump was elected by people who wanted to be on the same side as the Pope, we’re not giving voters enough credit. It is true that most people are disengaged from serious news, and vote with their guts rather than their heads, or being guided by friends rather than a close reading of policy analysis. That does not make them fools.

There is much to concern me in the current political information environment. I worry (partly selfishly) that it is harder than ever to sustain a business that provides serious journalism. I worry that politicians around the world are doing their best to politicise what should be apolitical, to smear independent analysis and demean expertise.

I worry that there is far too little transparency over political advertising in the digital age: we don’t know who is paying for what message to be shown to whom.

The free press — and healthy democratic discourse — faces some existential problems. Fake news ain’t one.


Written for and first published in the Financial Times on 4 January 2019.

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Undercover Economist

Cash-rich, time-poor: Why the wealthy are always in a hurry

Will making more money save you time? Or will it make you feel more rushed than ever? I’ve been pondering this question because a friend challenged me to figure out whether income poverty and time poverty go hand in hand.

There are cash-poor, time-poor people, who juggle multiple shifts with childcare and spend precious hours on long commutes. There are cash-poor, time-rich people — pensioners or job seekers wondering how to fill the day. But, on average, are richer people more or less busy than those with less money?

On one point, the evidence is clear: whether or not people on high incomes are busy, they think they are. In a forthcoming book, Spending Time (UK) (US), economist Daniel Hamermesh looks at “time stress”, which is measured not by looking at a time-use diary but instead by surveying people to ask if they often feel “rushed” or “pressed for time”.

New parents, especially new mothers, are more likely to complain of time-stress. So are people who work longer hours — no surprise there. But what about income? Prof Hamermesh finds that “people who were always or often stressed had the highest earnings . . . earnings were lowest among the never-stressed”. Money goes hand-in-hand with the sense that there aren’t enough hours in the day.

This isn’t just for the obvious reason that high-income people spend more time doing paid work, although on average they do. (They also sleep less and watch less television.) Of people who work the same hours, having a higher income per hour is correlated with feeling pushed for time. Even people who don’t do any paid work at all feel more rushed if they have more money.

On the face of it, this makes little sense: surely, for any given workload, money is a timesaver rather than a time-sink? Logically, yes. Psychologically, no. It seems that people with more money find more things to do with their time, and so feel more time pressure.

For example, someone with money to spare may book nights at the theatre, reserve tables at fancy restaurants and sign up for bespoke courses. With less cash, cheaper options such as watching TV or reading a book seem more practical. A time-use diary would record all of these activities as “leisure”, but curling up at home with a book is not only cheaper than going to the theatre, but induces less of a sense of time stress.

I’m not saying we should shed a tear for the millionaire who feels she doesn’t have enough hours in the day to spend all her money. But perhaps we shouldn’t be surprised that such feelings are common among richer people.

Another perspective comes from comparing education levels to how people spend their time across a week, as the economists Orazio Attanasio, Erik Hurst and Luigi Pistaferri have done.

People with more education — say, more than 12 years — tend to be richer. But do they also tend to be busier? It seems so. We have US surveys from around 1985 and 2005, and they show that less-educated people have more leisure time than those who are highly educated. (They also had more leisure time in 2005 than in the 1980s.) In contrast, the more highly educated group — who already had less free time in the 1980s — have been getting busier since.

There’s a gender dimension here too. Both in the 1980s and the 2000s, the people with the least leisure time were highly educated women, while those with most time to kill were less-educated men.

The gap between these two groups has widened. While less-educated men have gained 2.5 hours of leisure time a week (to a total of 39 hours), the more-educated women have lost two hours a week (bringing them down to a total of 30 hours). Women also feel more time-stressed than men, even after adjusting for other factors.

All these averages, of course, conceal a great deal of variation. The extra 2.5 hours of leisure a week that less-educated men have gained sound rather pleasant. But behind that average is a growing minority with 60, 80 or 100 hours a week of “leisure time” — better described as unemployment. Although research suggests that some young men seem not to mind unemployment, given that computer games are now so awesome, most people hate it.

So while there are many struggling people who are holding down several different gigs, juggling childcare and burning time on long commutes, overall the evidence shows that the rich are time-poor and the poor are time-rich.

Is this any compensation for the other inequities of life? Probably not — although it depends how much you enjoy your leisure and whether you enjoy your job. Recent studies of people doing gig work or shift-work on irregular hours find that a lot of them love the flexibility but many others hate the uncertainty or want more work.

Research on happiness shows that people — on average — tend to prefer leisure to work. On the other hand, it also shows that being unemployed is utterly miserable. Prof Hamermesh writes, “I would be very happy to wager that most people would choose to feel time-poor rather than income-poor.” It’s hard to disagree.


Written for and first published in the Financial Times on 30 Nov 2018.

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Technology can be the friend of creativity

By the time you read this, I shall be sitting in a cinema watching a screening of The Box of Delights (US), nearly three hours of vintage television that captivated me as a boy when broadcast on the BBC in the six weeks running up to Christmas 1984. I’ll be charmed by Patrick Troughton, terrified by Robert Stephens, and mildly amused by the special effects, which were record-breakingly lavish at the time but look amateurish now.

Christmas isn’t Christmas without The Box of Delights. Still, the cinema visit is an indulgence, because a presumably illicit copy of the series has been on YouTube for three years. And there lies an interesting question: what has digitisation done to the richness of our popular culture, from TV and film to music and books?

The obvious response is that digitisation is ruining everything: a children’s series that was once the most expensive ever made by the BBC has been pirated. Why would the BBC — or anyone — invest in the next masterpiece if it will inevitably be ripped off?

This problem is starkest for the music industry, since pirated music is not only free but convenient. For the US music industry, annual retail revenues for physical products have fallen in real terms by more than 90 per cent, from about $20bn in the late 1990s to less than $1.5bn last year. Revenue from downloads and particularly streaming has been growing strongly, but the total takings are less than half what they once were.

Such a collapse in revenues does not seem to be a recipe for a creative flowering. The same threat of piracy — or simply competition from videos of cats riding on Roombas — hangs over film, TV and books. (It also hangs over journalism, but that is a topic for another day.)

On the other hand, digitisation makes it easy to find obscure works. The Box of Delights was merely a memory for many years; finding a copy on VHS video would have been its own epic quest. Now I can watch it on a whim, without leaving my desk.

In the early years of ecommerce, economists Erik Brynjolfsson, Yu Hu and Michael Smith estimated that the availability of obscure book titles alone through websites had increased consumer welfare in the US by about $1bn in the year 2000 — a modest $3 per person, but not nothing. That figure may be much more today.

There is a balance here to be struck, and it is one familiar from debates about copyright. Copyright creates an artificial monopoly, rewarding creators to encourage them to create more. The same artificial monopoly raises prices to consumers and restricts remixes, adaptations and derivative work that is valuable in its own right. Copyright can harm the spread of creative ideas by being too weak, or too strong.

At least copyright rules can be optimised in principle — even if they are in practice much longer than is required.

Technology cannot be so easily tamed by a stroke of the legislator’s pen. So what has new technology done to creative work? Has it been gutted by piracy, or is it flourishing thanks to ever-cheaper means of producing and distributing new ideas?

Joel Waldfogel, an economist and author of a new book, Digital Renaissance (UK) (US), has been trying to figure out the answer to that question. On the question of quantity, there is no doubt: we now have access to vastly more creative works. As well as all the amusing Roomba videos, there is a huge international output, from “Gangnam Style” to the Korean historical dramas that my daughter enjoys so much. Obscure music and out-of-print books can be obtained in digital form within seconds, and YouTube allows me to bore my children with old comedy clips any time I choose.

Isn’t this just strip-mining old assets? No. New releases abound. In the US, 3,000 new movies were released in 2010, up from 500 in 1990. New song publication increased sevenfold between 1988 and 2007, despite plunging revenues. Four hundred thousand books were published in 2012, up from 85,000 in 2008. Much of this new stuff is dreadful, but that doesn’t much matter, since nobody has to watch, hear or read it. What matters is not the average quality, but the quality of the best stuff.

This is hard to assess, but Prof Waldfogel looks at indicators such as reviews — both of professional critics and on online databases — for measures of quality. Among the dross there is an increasing number of both highly rated TV shows and highly rated movies.

Music, too, is doing just fine. Synthesising the ratings of critics suggests that the late 1960s and early 1970s were the golden age for music; any other conclusion would have been a shock. But while more recent music is less highly rated, there is little sign that it is inferior to the highly profitable albums of the 1990s.

This shouldn’t be entirely surprising. Most ideas used to be shut down at an early stage; now many see the light of day. As the late novelist William Goldman reminded us, “nobody knows anything”, so it is no surprise that among these new releases, the occasional gem sparkles. The internet, like the box of delights itself, is full of wonders.


Written for and first published in the Financial Times on 7 December 2018.

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Stop sniping at central banks and set clear targets

What is the most important job in the world? President? Teacher? Parent? I suggest a post that would not feature on most people’s lists: central banker.

James Carville, who advised US president Bill Clinton, once quipped that he wanted to be reincarnated as the bond market, able to intimidate anybody. But as Ben Bernanke, Mervyn King and more recently Mario Draghi (crisis-era central bank heads in the US, UK and EU respectively) demonstrated, even the bond markets must bow to the desires of a central banker with trillions to spend.

Thank goodness for such financial superpowers. These central bankers have a strong claim to having prevented a rerun of the Great Depression. But the crisis is over, Mr Draghi is the last of that cohort still standing. Now in the final year of his term as European Central Bank president, he announced this week that eurozone quantitative easing would end this month.

So can central bankers now step out of the spotlight and toast their own intelligence, decisiveness and humility with a decent claret? It seems not. Politicians are spoiling for a fight.

President Donald Trump recently accused the US Federal Reserve of having “gone crazy” (the alleged sign of insanity: nudging interest rates up during a boom). Turkey’s Recep Tayyip Erdogan has been leaning on his central bank. And when the Reserve Bank of India’s governor abruptly resigned this week after weeks of political pressure, nobody was buying his claim that it is “for personal reasons”.

In the UK, Mark Carney, the governor of the Bank of England, has drawn fire both from prime minister Theresa May and Brexiter Jacob Rees-Mogg. Central bankers claim to be uninterested in politics, but politics is interested in them.

To understand how we got here, it is worth remembering why the idea of independent central banking, fashionable in the 1920s, became the received wisdom again in the 1990s.

The aim was simple: credibility. Politicians are always tempted to lower interest rates to keep the economy hot, unemployment low and voters happy. This might achieve short-term benefits but it undermines an economy’s health and stokes inflation. Even a principled politician’s promises to curb inflation would not be believed; bond markets would demand an inflation premium, unions big pay rises.

A flint-hearted technocrat can at times deliver better results for everyone. In the early 1980s, Fed chair Paul Volcker demonstrated the basic idea that inflation could be crushed by a sufficiently badass central banker. New Zealand formalised the arrangement a few years later by giving the Reserve Bank of New Zealand an explicit inflation target, regardless of consequences.

That target was hit. “Inflation will be defeated” seems to be partly a self-fulfilling belief, so credibility is a strong argument for central bank independence.

Yet central bankers have experienced some serious mission creep over the past decade. Paul Tucker, a former deputy BoE governor and author of Unelected Power (UK) (US), notes that we have handed ever more power to them. There were reasons for this. Central banks operate through the banking system and have the ability to create new money without limit. Instead of watching the crisis of 2008 from the sidelines, they rolled up their sleeves and got involved in almost every part of the bond and loan markets. Yet these efforts — from buying up debt to regulating mortgage availability — created winners and losers. That is the natural domain of politics.

And so we have three options. The status quo is to leave powerful unelected officials free to act with wide discretion, while serving as a scapegoat for politicians who have nothing else to offer. That will not do.

Or we could double down on autonomy. The central banks got plenty right during the crisis and, given the sorry state of politics at the moment, technocracy has a certain appeal. If the UK appointed Mr Carney supreme dictator for life and bought him a nice dress uniform, he surely couldn’t do a worse job of running the country than the elected politicians currently attempting to interpret the “will of the people”.

But the long-run health of our democracies demands that our politicians start taking responsibility again. The Brexit referendum demonstrated that it is unwise to turn over direct policymaking power to us voters; we lack the time, expertise and interest. Yet it is undemocratic to place the levers of power two or three steps away from the people.

There is no easy or complete solution, but Mr Tucker is right to demand a return to clear mandates for independent agencies, set and monitored by elected politicians. That is partly to keep the technocrats in check, but also to force politicians to step up.

If we see clearly that responsibility lies with elected officials, then we may start to value expertise for the sake of expertise again. We are only likely to trust technocrats to deal with the technical details if we see that politicians are dealing with the politics. We cannot allow unelected people unlimited discretion. But just as importantly, we cannot tolerate our politicians acting like children and hoping that the grown-ups will tidy up the mess.

Written for and first published in the Financial Times on 14 Dec 2018.

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