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

The weakest link theory that explains our economic woes

My new podcast, “Cautionary Tales“, launches tomorrow with two episodes – one about what we can learn from an oil tanker that was too slow to change course, and another about why we fall for cons. I’m very excited about the show, and proud of it. Do please subscribe and have a listen! [Apple] [Spotify] [Stitcher]

Now, on with this week’s column…

I was delighted to see Abhijit Banerjee, Esther Duflo and Michael Kremer announced as winners of the Nobel memorial prize in economics. By championing the use of randomised controlled trials in development projects, they have added large and useful doses of rigorous evidence to a discipline that can be overfond of reasoning from a comfortable armchair.

The spotlight this week has understandably been on Prof Duflo. She is a superb economist, highly charismatic and the youngest winner by far. She is also only the second woman to win the prize, after Lin Ostrom in 2009. Since Prof Ostrom was a political scientist, and not as well known in the economics profession as she should have been, Prof Duflo is arguably the first female economist to win the prize. That has huge symbolic importance for a profession that continues to struggle with diversity.

All three winners have made major contributions beyond the championing of randomised trials that won them the prize. Prof Kremer, in particular, has made an unusual series of insights. With Seema Jayachandran, he proposed a way to constrict funding to oppressive or corrupt regimes. An international court could declare that their borrowing was “odious” and need not be repaid by a successor government. This declaration would dissuade banks from lending in the first place.

With his wife, Rachel Glennerster, now chief economist of the UK’s Department for International Development, he set out the case for an “advanced market commitment” to fund the development of vaccines and medicines that the market would otherwise be unlikely to provide. That proposal later took shape as a $1.5bn fund to pay for a pneumococcal meningitis vaccine that did not yet exist. Several hundred million children have since received the vaccine.

Then there’s Prof Kremer’s O-ring Theory of Development, which demonstrates just how far one can see from that comfortable armchair. The failure of vulnerable rubber “O-rings” destroyed the Challenger space shuttle in 1986; Kremer borrowed that image for his theory, which — simply summarised — is that for many production processes, the weakest link matters.

Consider a meal at a fancy restaurant. If the ingredients are stale, or the sous-chef has the norovirus, or the chef is drunk and burns the food, or the waiter drops the meal in the diner’s lap, or the lavatories are backing up and the entire restaurant smells of sewage, it doesn’t matter what else goes right. The meal is only satisfactory if none of these things go wrong.

Once you start to think about O-ring problems, you see them everywhere. A bank is useless if you can’t trust it to keep your money safe from hackers. The most stylish and comfortable car is worth nothing without reliable brakes. You can build a sophisticated factory in a jungle but your efforts will be in vain if you can’t keep the road to it open.

What’s less obvious is that the logic of O-ring problems dramatically changes the way an organisation — or an entire economy — works. Because a single failure can doom an entire project, several things follow. The first is that like attracts like: the best chef does his or her best work with the best suppliers and the best waiters in the best kitchen. It is pointless to ask the best waiter to serve poisonous slop made by an incompetent chef, and pointless to ask the best chef to prepare meals into which an incompetent waiter will sneeze. To spread out the talent is to squander it.

(Prof Kremer’s own career offers an example: he was a research assistant for a paper co-authored by Larry Summers, future US Treasury Secretary. Another assistant was Sheryl Sandberg, future Facebook chief operating officer. High performers seek out high performers.)

The second implication is that inequality is endemic. Since the most skilled workers have the most skilled colleagues and the best equipment, they are vastly more productive than others who are only fractionally less skilled. A modest variation in skills leads to a huge variation in wages. This is why blue-chip companies recruit only from elite colleges and universities. Why take a chance on someone whose face doesn’t fit? Policymakers trying to create a more equal society must find some way to swim against this tide.

Third, O-ring economies are self-perpetuating. If an economy has undrivable roads, unreliable electricity, impassable queues at customs, corrupt courts, and untrained workers . . . well, where is progress to come from? Improve the roads and you’ll still be foiled by the electricity; train the workers and the crooked legal system will still take you down.

For an individual, the question is how much education should I try to acquire? It depends on how much skill others have. If I can’t reach a job market full of highly competent people, there is little point in wasting time and effort developing skills that will be wasted.

The O-ring model is merely a simple way of thinking about how an economy might work — albeit one that seems packed with insight. Prof Kremer didn’t stay in his armchair for long. He and this year’s other winners have been demonstrating just how much economics, wisely used, can deliver.

 

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

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Hug your enemy rather than wrestling the pig

Brexit has already taken quite a toll on the British economy, and worse may be lying in wait. But the political damage seems graver. Lies, threats and insults have become ubiquitous. So has open contempt both for the opposite side and for once-respected institutions. As for the situation in Northern Ireland, or diplomatic relations between the UK and the rest of the EU, let’s not even think about it. (The English usually don’t.)

It’s tempting to obsess about the tone of politics, but that is a trap. If we spend our time wringing our hands over the form of the political conversation, it leaves little space to think about the content. Remember the lesson of the lie on the bus: a fact-checking dispute about the UK’s contributions to the EU successfully consumed all the oxygen in the 2016 referendum, leaving no breathing space for a discussion of the issues involved. The exact claim didn’t matter: what mattered was that in order to dominate attention it had to be palpably false.

This season’s versions of the lie on the bus are the insult and the threat. Boris Johnson specialises in the insult. A freshly coined one this week was “uncooperative crusties”, although his crass responses to MPs reminding him of Jo Cox’s murder will live longer in the memory. The prime minister’s adviser Dominic Cummings prefers the threat — recall his infamous clash with the MP Karl Turner, who complained, “I’ve had death threats overnight”, to which Mr Cummings retorted, indefensibly, “Get Brexit done”.

Yet it was Mr Turner who started the altercation, with camera in tow. It added to the bitter circus, while distracting from the absurdity of demanding that anyone “get Brexit done” — which makes as much sense as telling a pregnant woman “get the child done”. Mr Cummings will have been pleased enough with that distraction.

A no-deal Brexit would be the beginning of a bitter negotiation about what comes next. Agreeing on a deal would require previously undiscovered capacity for compromise and, again, would begin further discussion. Even revoking Article 50 and calling the whole thing off, presumably after a bitterly fought referendum, would hardly end the matter. There is no “done” here — just a long journey ahead.

Wherever that journey may lead, we need to find a way to get along with each other along the way. So here are three ideas. First, we should do ourselves and each other the favour of engaging with the issues. From the Irish border to the sense of hopelessness in some British towns, there are problems to solve. Next time you’re faced with someone whose politics who dislike, you may get along better if you discuss what can be done to help Blackpool or Merthyr Tydfil rather than which politician is the most despicable.

Second, we should try to avoid scorning people who seem — to us — underinformed. That’s partly because it behoves us to show humility: most of us know less than we think about how the world around us really works. How many of us can honestly say we’d thought through the difference between the single market and the customs union until after the referendum? How many can honestly say we fully understand it now? But it’s also because sneering at someone’s ignorance is a missed opportunity to explore an issue together. Most people we meet have something to teach us, and we have something to teach them.

Third, and most important, we need to remember that the people on the other side of the debate are still people — and usually people who, like us, want the best for themselves and the country. In response to the times we live in, my wife, a portrait photographer, has taken to asking people if they’re willing to be photographed hugging somebody who disagrees with them. Of course, the politicians refuse: Andrew Adonis and Nigel Farage had no interest in cuddling for her camera.

But what has been striking is that nobody else wants to hug across the political divide either. The request is not to hug Messrs Farage or Corbyn or Trump, but to hug an ordinary acquaintance with whom you disagree. As a Remainer, would you be willing to hug a Leaver, or vice versa? People hate the idea. Hugs are nice. But hug one of them? Never.

Fine. Perhaps the hug is too much for we emotionally reserved Brits. But if not a hug, might we at least hope for a handshake and a respectful conversation, rather than ostracism or shouting?

At the moment, everyone seems to agree that half the people in the country are ignorant, wicked or both. The only disagreement is over which half. A few people — some in politics, some in the media — find fertile ground in this outrage. It’s barren for the rest of us. We can do better.

One starting point is the old proverb, “Don’t wrestle with a pig. You get dirty and the pig enjoys it.” There’s truth in that. We just need to find a version that doesn’t dismiss our opponents as pigs.

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

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The risks in raising the minimum wage

You can have too much of a good thing. Somebody should mention this to Sajid Javid, the UK’s new chancellor of the exchequer. This week he announced an increase in the minimum wage to two-thirds of the median wage, bringing it to around £10.50 per hour. His plans are to come to fruition in 2024, assuming there are no unforeseen events in British politics in the interim.

The US House of Representatives has the same deadline in mind for a plan to raise the federal minimum wage from $7.25 to $15. After the 2020 election, they may get their way.

I fear that we are creeping towards a serious mistake — maybe not now, but soon. And it isn’t too late to correct it. There are three elements to the mistake. The first is the scale of the changes afoot. When the minimum wage was first introduced in the UK in the late 1990s, only a few hundred thousand workers were paid it. Last year, 2m workers received the minimum wage. And according to the Resolution Foundation, a think-tank that has been strongly supportive of increases in the minimum wage, if it had been at two-thirds of median income last year, nearly 5m workers would have been covered — rather than 2m. Mr Javid’s proposal is a dramatic expansion in the number of people whose wages are set by the government rather than by supply and demand. The proposals in the US are even more seismic. This is a bigger idea than most people realise; let us hope it is also a good one.

The second element of the mistake is to politicise the minimum wage. That is old news in the US, where it see-saws up and down according to the whims of Congress. Over the decades it has been as low as $4.17 and as high as $11.55 in today’s money. The last sharp increase was in 2007-2009 — that is, in the teeth of the great recession. Most countries use a formula or a technocratic committee to set the minimum wage. The UK was among them, until 2015, when one of Mr Javid’s predecessors, George Osborne, decided there might be some fleeting political advantage in sidelining the committee and claiming credit for raising the minimum wage. Mr Javid has done likewise. British politics, after all, has had enough of experts.

This is unwise because the judgment of where to set the minimum wage is essentially a technocratic one. There is a trade-off. When we forbid an employer to pay less, we hope that low-paid workers will get a pay rise, but fear that they will simply get the sack. The trade-off requires evidence to assess. What’s more, the trade-off is asymmetric. Any rise in the minimum wage earns immediate praise, while the jobs lost are lost gradually, as firms ponder new hires or buy labour-saving machines. When benefits are immediate and costs are delayed and hidden, it is best for everyone’s sake to delegate the decision to someone who isn’t running for re-election.

Nor is it easy to undo a mistake. Once a minimum wage rises too far, and the new machine is installed or the factory is moved offshore, reversing the policy will not easily bring the old jobs back.

The third element of this potential mistake is the rebranding of the minimum wage as a “national living wage”. This is a serious conceptual error. A minimum wage should be set with reference to the trade-off between better pay and fewer jobs. That is true whether it is half what anyone could live on, or 10 times as much.

I’m all in favour of everyone having enough income to live on — and in a rich country such as the UK or the US, “enough to live on” should mean much more than just food, clothes and shelter. But if a decent living wage is higher than a minimum wage that would destroy jobs by the million, that is not a problem that minimum-wage legislation can solve. Instead, it requires the government to provide some kind of basic income or tax credit. Mr Osborne’s rebranding of the minimum wage was coupled with reductions in tax credits; it was the perfect smokescreen. In the longer term, a minimum wage needs to be bolstered by investment in education, infrastructure and other productivity measures that allow every worker a chance to earn a good wage. If workers don’t have an environment in which they can be productive, higher pay cannot simply be wished into existence.

I don’t mean to strike a tone that is too apocalyptic. In the UK, increases in the minimum wage have eaten into the problem of low pay with no apparent impact on employment and only a small sign of an impact on hours worked. The international evidence is mixed: on balance it suggests that minimum wages can and do destroy jobs for the low-skilled, but perhaps not as dramatically as we economists once feared.

It’s possible, but not certain, that further rises will bring further benefits. Yet it is dangerous to view the minimum wage as a free lunch, something to be dished out by politicians without pondering either the evidence or the risks. It is more like a strong medicine with serious side effects. It should be prescribed with caution and under expert supervision — not mixed with sugar and downed in one gulp.

 

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

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Beware of simple ideas that become serious pains

“An act of economic vandalism,” said the trade union Unite. What did they have in mind? There are all too many candidates. Apparently the vandalism was a failure to prop up a package holiday company, which suggests the bored kids in my neighbourhood are missing a trick.

The collapse of the UK tour operator Thomas Cook is a big blow: 150,000 British residents have been stranded overseas, others have seen long-anticipated holidays evaporate and many thousands of jobs are at risk. The prospect of well-paid executives strolling off into the sunset adds to the stink.

Something must be done! But what? Unite has called for the government to “stand behind” Thomas Cook, which doesn’t sound like a big ask — until you realise that even the temporary survival of the tour operator would cost £100m or more. I often stand behind things — yellow lines, pot plants, the kitchen sink. I hadn’t realised it could be such an expensive business.

Whenever something goes awry — and Thomas Cook is not the only thing going awry in the world — it is tempting to believe that government should roll up one sleeve and plunge its arm in up to the elbow. That is not inevitably a bad idea, but one must always reflect on whether the effort will do more to harm than to help.

The Labour party has no patience for such reflection. For example, rightly worried that houses are too expensive, they propose that anyone who rents a property would gain the right to buy it at a price set by the government. John McDonnell, the shadow chancellor, described this idea to the FT, adding: “I don’t think it’s complicated.”

He should think harder. Who would be a landlord, if the act of letting out a house incurred the obligation to sell it? The entire private rental market would collapse. Some landlords would reject tenants to sell at a price of their own choosing; others would grit their teeth and keep the house empty. Just because the idea would hurt landlords does not mean it would help tenants.

The grand plans don’t stop there. A fringe meeting of the Labour party conference — attended by Mr McDonnell — was even joking about nationalising Greggs, supplier of Cornish pasties and steak bakes to a hungry public. This hilarity aside, there is a slippery slope in action here: the more a government feels it needs to take action when anything in a complex modern economy goes wrong, the closer we are to appointing a Minister for Sausage Rolls.

The left is particularly susceptible to this sort of foolishness, but the right is not immune. One Twitter troll complained to me that an interview with equal pay campaigner Carrie Gracie was “fake news” because unequal pay was illegal — so of course it could not exist. I’m sure Mr McDonnell would find that view as absurd as I do — and yet he and the troll do seem to share a touching faith that when you change the law, problems simply vanish.

Meanwhile, US president Donald Trump has found his government buying dairy products to shield farmers from his own trade war. We’ve been here before, and the story ended with the US administration renting vast underground caves and filling them with government cheese. A simple idea turns into a serious headache.

Then there is “take back control”, the Brexit slogan that sounds good until you think about it. Who exactly is going to get this much-vaunted control, and how do they propose to use it? British citizens already had control over some valuable things — notably the right to travel to, work in or trade with any part the EU. Exactly what sort of “control” will replace those freedoms remains unclear. Instead, Prime Minister Boris Johnson announces “let’s get Brexit done”, as though he were planning to mow the lawn.

It is, of course, possible for governments to develop well-designed interventions. But a £2tn economy with 67m unruly residents is not a toy. The actions of both those in power in the UK, and those who wish to be in power, show no understanding of this. Both sides want radical change but have no deep interest in what it is they would like to change.

The government’s response to the risks of a no-deal Brexit are a good example: after being warned of severe disruption, the minister in charge, Michael Gove, announced that preparations had been stepped up over the previous few weeks — as though protecting the UK’s fragile supply lines from being shredded by the government’s own recklessness was no more complex a task than writing an essay overnight before an Oxford tutorial.

The worst thing about foolish ideas is that draconian policies are needed to make them stick. Theresa May’s policy when home secretary of creating a “hostile environment” for immigrants sounded brutally simple, but turned into the national disgrace of the Windrush scandal. Those on the left who rightly deplore the policy should reflect on how many of the things on their economic wishlist will also require heavy-handed policing if they are to be delivered.

“I don’t think it’s complicated,” says Mr McDonnell. But it is. It really is.

 

Written for and first published in the Financial Times on 27 September 2019.

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Why we’re thinking about worst-case scenarios in the wrong way

Such excitement this week. I was about to stand up to give a talk, when I received a text message: I’d been hoping for a lift back from London to Oxford, but the motorway had been closed by an accident. Normally, I’d have cycled on my folding bike to the station, then hopped on the train. But I had not expected to need my lights and cycling after dark without them seemed ill-advised.

So I flagged down a black cab, first checking that it took credit cards because I didn’t have cash. Alas, the card machine went on the blink. I sat outside the station as the minutes ticked away while the cabbie kept turning the thing off and on again. Sprinting the length of Marylebone station in a suit and tie, with a Brompton bike under one arm, was not how I had envisaged the evening unfolding.

This brings me to a question some of us ask all too often, and some of us not often enough: what if it all goes wrong? The motorway, the bike lights, the card machine — when the fates seem stacked against me. Some friends of mine are prone to anxiety over the most unlikely contingencies. Others, particularly the Antipodeans, shrug off risks with a “she’ll be right”.

But I’ve become convinced that we don’t think about worst-case scenarios in the right way.

The first problem is that our sense of risk is pretty crude. The great psychologist Amos Tversky joked that most of us have three categories when thinking about probabilities: “gonna happen”, “not gonna happen” and “maybe”. Much of our intuitive thinking about worst-case scenarios seems to revolve around anxious people upgrading “maybe” to “gonna happen”, while the careless downgrade “maybe” to “not gonna happen”.

Tversky, alas, died before witnessing the UK prime minister Boris Johnson adjust his estimate of the probability of failing to agree a deal with the EU from “a million to one” to “touch and go”. I suspect the probabilistic acrobatics would have made him chuckle.

It would be helpful if our sense of risk was a little more refined; intuitively, it is hard to grasp the difference between a risk of one in a billion and that of one in a thousand. Yet, for a gambler — or someone in the closely related business of insurance — there is all the difference in the world.

And research by Barbara Mellers, Philip Tetlock and Hal Arkes suggests that making a serious attempt to put probabilities on uncertain future events might help us in other ways: the process makes us more humble, more moderate and better able to discern shades of grey. Trying to forecast is about more than a successful prediction.

But there’s another trap here: we can become sidetracked by the question of whether the worst case is likely. Rather than asking “will this happen?”, we should ask “what would we do if it did?” The phrase “worst-case scenario” probably leads us astray: anyone can dream up nightmare scenarios.

On my journey home this week, I could have been killed in the crash that closed the motorway. Oxford could have been hit by a nuclear strike. Neither is a helpful scenario for the purpose of travel planning.

Instead, I should have thought: what if the lift does not work out? What if small change and a card won’t do? Neither contingency was likely, but both were possible and easily dealt with. Worrying about nuclear strikes would not have helped me — but neither would shrugging and assuming nothing could go wrong.

To help us think sensibly about these worst-case possibilities, Gary Klein, psychologist and author of Seeing What Others Don’t, has argued for conducting “pre-mortems” — or hypothetical postmortems. Before embarking on a project, imagine receiving a message from the future: the project failed, and spectacularly. Now ask yourself: why? Risks and snares will quickly suggest themselves — often risks that can be anticipated and prevented.

Contingency planning is not always easy. The UK is currently wrestling with the prospect that the government will fail to agree terms for leaving the EU, triggering disruption in the short-term. The government’s own Operation Yellowhammer planning documents have described the woes that would result both as the “base case” (the truth) and a “worst-case scenario” (the government sucking in its stomach while posing for a selfie).

For a rational policymaker, the difference between base case and worst case is irrelevant: since there are few benefits to the back-to-square-one quagmire of negotiations that no-deal would bring, the short-term disruption is something to be avoided, whether or not it is likely. But since our government set rational policymaking aside some time ago, the rest of us must contemplate the risks and do what we can to prepare. That is true whether the chance of a Halloween horror is 5 per cent or 50 per cent.

In a febrile political atmosphere, it is hard to step back and ask: what if this all goes wrong? But we must try. And we can only regret that David Cameron didn’t perform a pre-mortem before calling a referendum in the first place.

Written for and first published in the Financial Times on 20 September 2019.

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How this climate change economist changed my world

I read a lot of economics papers, but I don’t often read economics papers that make me think, “this changes everything”. But Martin Weitzman wrote one. I still remember exactly where I was when I read it. Even for a nerd like me, that’s not normal.

Professor Weitzman took his own life in late August. He was 77 and had reportedly been worried that he was losing his mental sharpness.

Weitzman’s sad death prompted me to reflect on what it was about his essay that so struck me. It was a commentary on Lord Nicholas Stern’s Review on the Economics of Climate Change. Weitzman gently pulled the Stern Review apart — “right for the wrong reasons” — and offered an alternative view of the problem.

For those of us who think climate change requires bold, urgent action, there are two awkward facts to contend with. The first is that its most worrying impacts — including floods, crop failures and diseases — are unlikely to manifest at full strength for decades or even centuries. The second is that because the world has been getting dramatically richer, future generations are likely to be much wealthier than we are.

Both these awkward facts militate against doing anything too expensive in the short term.

Here’s an analogy: imagine that I discover an incipient damp problem in my house. A surveyor tells me that if I spend £1,000 now, that will spare my great-grandchildren £5,000 of repair works in a century. At first glance it seems that I should fix the damp.

On reflection, though, spending money now would be foolish. Investing £1,000 in the stock market on their behalf would be better. At a modest 3 per cent real rate of return, it should be worth about £20,000; at 5 per cent it will be worth £130,000.

In any case, won’t my great-grandchildren be vastly richer than I am, just as I am vastly richer than my great-grandparents? Why worry? They’ll cope.

This oversimplification of the complexities of climate change gets at something important. Lord Stern’s case for action depended on arguing that our super-rich descendants living in the far future should weigh very heavily in our calculations. It is hard — not impossible, but hard — to square that with how we behave in respect to any other issue, personal or social. We simply do not set aside nine-tenths of our income to benefit future generations.

Weitzman was among several prominent economists to raise this concern. But he then asked us to contemplate the risk of runaway effects. An example: as arctic permafrost thaws, a huge volume of methane, a powerful greenhouse gas, may be released. Other economists have recognised the issue of “tail risks”, well outside the most likely scenarios. None have thought more deeply about it than Weitzman.

Central estimates can lead us astray. The most likely scenario is that climate change will cause real but manageable suffering to future generations. For example, the World Health Organization estimates that between 2030 and 2050, climate change may cause an extra 250,000 deaths a year because of threats such as malaria, heat exposure and malnutrition — a less serious problem than local and indoor air pollution, which kill 8m people a year. If we focus on the central forecast, it is local air pollution that should get most of our attention.

It is only when we ponder the tail risk that we realise how dangerous climate change might be. Local air pollution isn’t going to wipe out the human race. Climate change probably won’t, either. But it might. When we buy insurance, it isn’t because we expect the worst, but because we recognise that the worst might happen.

The truly eye-opening contribution — for me, at least — was Weitzman’s explanation that the worst-case scenarios should rightly loom large in rational calculations. If there’s a modest chance that the damp problem will give all my great-grandchildren fatal pneumonia, I shouldn’t ignore that. And my great-grandchildren wouldn’t want me to: the probably rich great-grandchildren would happily sacrifice some trivial amount of income to avoid being the possibly dead great-grandchildren. But they won’t have the choice. It’s up to me.

Weitzman was a stupendously creative man. Other celebrated contributions studied the trade-off between pollution taxes and pollution permits, the “Noah’s Ark” problem of what to focus on when preserving biodiversity, and an early argument in favour of companies sharing profits with their employees.

“If you don’t think an idea might be worthy of the Nobel Prize, you shouldn’t be working on it,” he told one colleague. Some economists would say that he reached that impossibly high standard more than once — and were surprised that he was not named as a joint Nobel Prize winner last year, when William Nordhaus was recognised for his work on climate change economics.

Nevertheless, the message of Weitzman’s recent work has influenced the policy debates on climate change: the extreme scenarios matter. What we don’t know about climate change is more important, and more dangerous, than what we do.

Written for and first published in the Financial Times on 13 Sep 2019.

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When it comes to productivity hacks, are you an Arnie or an Elon?

Returning from the summer with a head full of good intentions, I have become aware of a philosophical schism in the world of productivity hacks. In one corner, Arnold Schwarzenegger. In the other, Elon Musk and the “timeboxers”. (I swear, I am not making this up.) The philosophical divide is over a simple question: how much should you schedule blocks of time in your calendar?

Mr Schwarzenegger reportedly kept his diary clear as a film star, and even tried to do so when he was governor of California. “Appointments are always a no-no. Planning ahead is a no-no,” he once said. Visitors had to treat the Governator like a walk-in restaurant — show up and hope for the best.

The opposite approach is timeboxing: timeboxers advocate transferring the entire “To Do” list to a calendar. Need to do some laundry? Set aside time on the calendar. Have a column to write? Block out the necessary hours. Want to chill out on Instagram? Put it in the calendar. Not getting enough sleep? You guessed it: calendar.

Since any productivity hack needs a celebrity endorsement, timeboxers claim (on thin evidence, it seems to me) that the technology entrepreneur Elon Musk uses the technique. Most of us have to compromise a little more with the rest of the human race than do either Mr Musk or Mr Schwarzenegger. Yet the divide is real: schedule as much as possible, or as little as you can get away with? We must all decide if every minute of productivity or rest should be planned in advance, or whether it’s better to be more flexible.

Timeboxing originated as a collaborative technique for software developers, and in that context it may work well. Yet, as a personal productivity tool, it seems infantilising. Calendars work for time-specific commitments, such as flights or nights at the opera; everything else should go on a to-do list, a much more flexible way of keeping track of commitments.

I do not want to dismiss those who claim timeboxing works for them. I’m just not persuaded. Some say timeboxing helps them avoid being overwhelmed by a long list of tasks; I say prioritise. Timeboxers note Parkinson’s law: work expands to fill the time allocated. I say, set deadlines.

More recently, I’ve seen timeboxing praised as a strategy for avoiding distractions. Nir Eyal, the author of Indistractable, says that timeboxing helps him confine Facebook and YouTube to narrow slivers of the day. If that works for you, fine; I suspect it’s more productive to have a more fundamental rethink of your relationship to social media.

David Allen, author of the cult book Getting Things Done, reckons that timeboxing is a psychological crutch. We all need to feel on top of the commitments we’ve made to others and to ourselves, and it’s not easy. For those of us who feel we’re losing our grip, he tells me, “structuring time for social media, walking the dog, prepping for dinner, might make you feel more comfortable. If you’re like me, though, you plan as little as you can get by with”.

Todd Brown of Next Action Associates, a management training firm, agrees. People like blocking out time because it feels like they can “grab control of the situation”, he says. At the end of the week, however, what if everything has changed?

I agree with both of them. Commitments do not become easier to manage simply because you decide in advance when it is all going to happen. Life has a habit of producing surprises: the boss has an urgent task; the car won’t start; an old friend texts to tell you she is on a flying visit from Australia. The most inevitable surprise of all is that everything always takes longer than you think it will.

Still, that is just my opinion. If a serious study of the rival techniques exists, I have yet to find it. One relevant experiment was conducted nearly 40 years ago by the psychologists Daniel Kirschenbaum, Laura Humphrey, and Sheldon Malett. They recruited undergraduates and gave them some basic productivity tips. One group was counselled to plan their goals and activities in broad monthly blocks. Another group was instead advised to plan their activities and set their goals on a daily basis.

Neither approach is precisely analogous to timeboxing, but the daily schedule is similar because students would draw up detailed plans. These plans backfired disastrously: day after day, the daily planners would fall short of their intentions and soon became demotivated, spending less time on studying and falling behind over the course of the academic year. The more amorphous monthly planners proved far more successful, presumably because they had more flexibility to adapt to events, as well as wasting less time fiddling around with their calendars. A plan that is too specific soon lies in tatters.

It is clear that some people have made timeboxing work for them. Everyone is different, and every job is different. For me, however, my To Do list is long, and my diary is as clear as I can keep it. And if Arnie is on my side, so much the better.

 

Written for and first published in the Financial Times on 6 September 2019.

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Undercover Economist

The curious economics of being ripped off on holiday

I once wrote that there are two types of charges: the ones you see coming and the ones you don’t. Perhaps I was too reductive. There’s a third category: the fees that you know are looming, but the fog is so thick that you can’t see them clearly.

Travellers are well used to these: the strange cover charge in the tourist-trap restaurant; the outrageous price of the hotel minibar and WiFi; those painful fees for flying with luggage. (Does it cost more to carry your bag on to the plane, or to put it in the hold? I lose track.)

I found myself pondering this a few weeks ago in the baking heat of Europcar’s Munich office. We’d hired a car online, arranging to drop it off in Milan and agreeing to pay the extra charge for doing so. Now the grumpy lady behind the desk insisted that there was a further charge of €14.99. Why? Because we planned to drive the car outside Germany. Apparently, the price we’d paid online was perfectly valid, but only if we arranged to teleport the car to Malpensa airport.

Surrounded by heat-exhausted children, my wife was outraged. It was the principle of the thing: Europcar had found a way to charge an extra fee despite not supplying anything beyond the original service. I was more relaxed, but only because mentally I’d already started drafting this column. (Europcar now tell me that because of a “system error” the charge was not clearly flagged at the time of booking, and they hope to prevent repeats.)

In fairness to Europcar, the only reason we had booked with them was because their rival Avis had stiffed us for a substantially larger sum of money the previous year. We are always careful to refuse all the overpriced extras, but this time, when we dropped the car off, Avis charged us almost €90 for “windscreen insurance” and then ignored our complaints about the matter. (I guess the true value of the insurance to be more like 90 cents than €90.)

Perhaps, somewhere in the byzantine process, we had failed to seek out and untick a “please overcharge me later for windscreen insurance” box? Even after the fact, it is often hard to tell.

How much should we worry about these hidden extras? Perhaps we should laugh them off as a cost of modern life. After all, businesses must still compete with each other and cover their overheads, so if these hidden charges could somehow be made to vanish, the everyday price might have to rise. We all know that such charges lie in wait when we deal with certain sorts of business — tourism and banking spring to mind. So why worry?

Unfortunately, it’s not that simple. Even when we know that certain charges will be added, we behave differently when those charges are highlighted. Over a decade ago, three economists, Raj Chetty, Kory Kroft and Adam Looney, conducted an experiment with a US retailer in which the familiar sales tax on everyday items was either made explicit or left implicit.

The sales tax, of nearly 7.5 per cent, is traditionally added only at the checkout. When products were relabelled to show clearly both the usual pre-tax price and what the post-tax price would be, shoppers bought substantially less. Professor Chetty and his colleagues had demonstrated that we respond differently when a cost, even a familiar one, is drawn to our attention.

There’s another reason to object to hidden charges: they make it harder to compare prices. The harder it is to compare prices, the less vigorous the forces of competition will be, to the detriment of the typical customer. I can rely on the fact that any car hire company will try to overcharge me, but I can have no confidence in just how hard the financial sucker punch will be, or when and where it will land. Should I refuse to do business again with Europcar, or should I reckon that they let me get away lightly?

A company could, of course, make a great play of not engaging in such tricks. Why not offer a price with “no hidden extras”? Alas, there are two problems with this. The first is that anyone can claim to offer a price with “no hidden extras”. When I typed the phrase into a search engine, one of the top results was Avis. Given my painful experience with the company, that is not encouraging.

There is a subtler problem too, explored a few years ago by the economists Xavier Gabaix and David Laibson. Even if an advert proclaiming “no hidden charges” is credible, it is not necessarily profitable. The problem is that not all customers would find the promise appealing. Some would instead infer “if you are good at avoiding hidden charges, try one of our competitors, who will offer you a cheap deal in the vain hope of ripping you off”. The transparent company would attract the suckers without exploiting them; the sneaky company would be a magnet for the sophisticates, who might well then avoid the tricks. The advertisement would backfire.

Perhaps it is no surprise, then, that companies boast about offering clear, transparent prices less often than we might expect, and that the boasts are often empty. That is my view as an economist. My reaction as a consumer will require some careful thought. Windscreens are transparent; prices, less so.

Written for and first published in the Financial Times on 30 August 2019.

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Undercover Economist

We are all potential victims of the con artist

Denise Milani was a 32-year-old Czech swimwear model. Paul Frampton was a divorced particle physicist more than twice her age. What happened next was a tale as old as time: they met online; she sent messages by turns steamy and adoring; they arranged to meet in Bolivia, where she was doing a photo-shoot.

Alas, when Prof Frampton arrived in La Paz to meet her face-to-face for the first time, she’d had to dash to another shoot in Europe. Could she meet him in Brussels instead? And would he mind, terribly, collecting an empty suitcase of hers and bringing it with him?

Of course, the real Ms Milani had no idea that her photographs were being used by a Bolivian drug gang. Prof Frampton seems to have had no idea either, although a friend warned him — correctly — that drugs were surely concealed in the suitcase linings. Prof Frampton duly spent several years in a Buenos Aires jail for smuggling 2kg of cocaine.

Why do we fall for the con? The obvious explanation: some people are idiots, or in Prof Frampton’s case, idiot-savants. But he isn’t the only academic to fall for a fake persona online.

In 2007, psychologist Robert Epstein struck up an online conversation with Ivana, a pretty and affectionate woman from Nizhny Novgorod. He was sufficiently charmed that it took him four months to realise that she was a chatbot. What makes that incident notable is that Prof Epstein was no head-in-the-electron-cloud particle physicist: he is one of the world’s foremost experts on how computers imitate humans.

He concluded that he had been fooled by his own wishful thinking as much as by a clever programmer. This isn’t unusual. Maria Konnikova, in her elegant book The Confidence Game, puts it well: “Cons work so widely because, in a sense, we want them to.” Profs Epstein and Frampton wanted to believe that attractive young women found them desirable. Wishful thinking can lead us far astray.

So, too, can fear and greed. Visceral emotions are easy to exploit. The “Nigerian prince” scam hooks our greed. We are promised vast riches, unlocked by a small advance payment. Other scams prey on fear: one cold-caller claims to be from your bank, warning that your account has been compromised; another is from the Revenue, demanding prompt payment of unpaid taxes. Anxious and panicked, we find ourselves bounced into making decisions we would mock in others.

There is no single unified theory of the con. Certain con artists really are artists — astonishingly charismatic, bold and versatile. But Ms Konnikova points out that many cons, like many magic tricks, are uncomplicated exploitations of common human traits, often traits that in other contexts would be strengths rather than weaknesses.

Self-deception, for example, is surprisingly useful in everyday life. One psychological study of competitive swimmers found that those with a clear-eyed assessment of themselves were more likely to fail. Another study, of married couples, found that the happier marriages were also the ones in which the spouses had a fuzzy read on each other’s opinions. Life seems smoother if we can’t see the wrinkles.

We like to think of ourselves as exceptional. Indeed, we wouldn’t be human if we didn’t loom large in our own thoughts. Our self-absorption leads us not to ask hard questions when we are promised exceptional treatment. It seems reasonable that a voluptuous model finds us irresistible, that an African oil billionaire trusts us with his cash, and that Brexit will be a doddle because, if we are polite yet firm, Germany will give the UK everything we want.

While exceptionalism makes us susceptible, so too does emotional vulnerability. Bereaved people, or those on the rebound, are tempting marks. People who have fallen for anti-vaccine pseudoscience do so because they are anxious about their children — as well as feeling smart enough to see through Big Government, Big Pharma propaganda. Many con victims fall for a second, follow-up fraud as they lick their wounds from the first.

Extended confidence tricks, where victims are fleeced over many months by someone they trust, often begin with the con artist offering friendship, sympathy or easy answers to someone who is feeling wounded. The US and UK electorates may both wish to take note.

One of the final cruelties is that many victims of fraud continue to trust the fraudster long after the con should have been apparent. A pre-Ponzi Ponzi scheme — William Franklin Miller’s 1899 Franklin Syndicate — was striking not only for its scale, but for the way Miller’s investors continued to dote on him even after the New York Times exposed the scam. What was the Times anyway, but a purveyor of fake news?

What unnerves me about Prof Frampton is that my own father knows him well. They were students together decades ago and still keep in touch. When I think of Prof Frampton, I instinctively worry that the victim of the next con could be my father. Perhaps I should be more alert to the fact that the victim of the next con could be me.

 

Written for and first published in the Financial Times on 19 July 2019.

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Undercover Economist

Should we take a few long holidays, or lots of short ones?

I know a man who used to deal with a stressful job, working 15-18 hour days in a senior role, by slipping away to a rented house near Richmond Park in London.

There, he refused to be interrupted by messages except during office hours, spent time playing bridge well and golf badly, and he ensured that the location of the hideaway was a well-kept secret. The few colleagues who did visit were strictly banned from talking about work. Yet despite his apparently laid-back approach, this fellow got results.

To be clear, I know this person only by reputation; Dwight Eisenhower died before I was born. But this is how he responded to the burdens of being supreme allied forces commander during the second world war. He found it essential to take time off.

We would all like to feel that our work is essential and our personal contribution irreplaceable. But, as Alex Soojung-Kim Pang, author of Rest: Why You Get More Done When You Work Less, notes, we’re unlikely to be doing quite as essential a job as Eisenhower’s. If he benefited from some down time, so might we.

But what sort of break is best? Should we be thinking of long sabbaticals, or is it enough to keep evenings and weekends free? Perhaps the ideal compromise is Bridget Jones’s dream of a “full-blown mini-break holiday weekend”?

The simple answer is all of the above. There’s something fractal about rest: we need it daily, weekly and yearly. That said, my reading of the (slim) evidence is that if you can bear the cumulative expense and the travel time, frequent short breaks beat the occasional elongated vacation.

Reason one: holiday memories tend to depend not on how long the holiday was, but on the intensity of the experiences. What matters is not how long you went away, but just how exciting and different the most exciting and different moments were. The first day of a visit to somewhere new will typically be more memorable than the tenth.

Reason two: a change of activity can be a spur to creativity. This need not be a long holiday; even an engaging hobby will do. Nobel Prize-winning scientists are much more likely to have serious arts and crafts hobbies than other scientists, who are in turn more likely to have serious hobbies than the rest of us.

Still, a holiday can help. Lin-Manuel Miranda was taking his first vacation for several years, at a resort in Mexico, when he read Ron Chernow’s biography of Alexander Hamilton, and was inspired to start working on what became the musical phenomenon, Hamilton. “The moment my brain got a moment’s rest, Hamilton walked into it,” he explained.

Intriguingly, Hamilton is, among other things, a musical about the importance of taking proper holidays.

“Take a break,” sings Hamilton’s wife, Eliza to her workaholic husband. “Run away with us for the summer, let’s go upstate.” Hamilton decides he needs to keep working instead and then makes sleep-deprived errors that led to his downfall.

Eisenhower’s aim in relaxing in his hideaway seems to have been to maintain his energy and good judgment. In short, he rested so that he could be a better general when he was working.

That leads us to reason three for taking a short break: if we need rest to prevent exhaustion, a single, long vacation won’t do the trick. Jessica de Bloom of the University of Groningen has found that the recuperative effects of a vacation tend to wear off in just a few weeks. You can’t store up the benefits of a long holiday any more than you can sleep for 24 hours then stay awake and sharp for the rest of the week.

All this raises another question, though: what should we do while we’re taking a break? According to Mr Soojung-Kim Pang’s survey of the available research, the ideal break offers relaxation, control, mastery and mental detachment.

By relaxation he simply means something that requires little conscious effort — from a walk to watching television. Control means autonomy over how you spend your time. Mastery refers to immersion in a challenging and absorbing task. An active holiday of skiing, sailing or rock climbing might do the trick — but so might a weekend of home improvements, assuming you’re better at putting up shelves than I am.

Finally there’s mental detachment — disconnecting from the responsibilities of the office. Such disconnection is harder than ever these days but it can help, even when the break is otherwise anything but relaxing. Business trips can be exhausting yet even they have been found to reduce burnout and stress, because they provide a break from day-to-day responsibilities.

And one 1998 study — by Professors Dalia Etzion, Dov Eden and Yael Lapidot — discovered that men called up for active reserve duty in the Israeli army found that the experience provided the same relief from burnout and stress in their normal lives that a holiday would have done.

It’s not that serving in the army is relaxing but that it provides a sense of distance from the day job. Unless, of course, your day job is in the army. In that case I recommend that you emulate Ike and enjoy a game of golf or bridge.

Written for and first published in the Financial Times on 16 August 2019.

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