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

Lessons from history in how to spot a bubble

Here are three noteworthy pronouncements about bubbles.

“Prices have reached what looks like a permanently high plateau.” That was Professor Irving Fisher in 1929, prominently reported barely a week before the most brutal stock market crash of the 20th century. He was a rich man, and the greatest economist of the age. The great crash destroyed both his finances and his reputation.

“Those who sound the alarm of an approaching . . . crisis have somewhat exaggerated the danger.” That was a renowned commentator who shall remain nameless for now.

“We are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.” That was investor Jeremy Grantham on January 3 this year. The normally bearish Mr Grantham mused that while shares seem expensive, historical precedents make it plausible that the S&P 500 will soar from present levels of around 2,700 to more than 3,500 before the crash occurs.

Mr Grantham’s speculation is striking because he has tended to be a savvy bubble watcher in the past. But as any toddler can attest, it is not an easy thing to catch one before it bursts.

There are two obvious ways to diagnose a bubble. One is to look at the fundamentals: if the price of an asset is unmoored from the cash flow it is likely to generate, that is a warning sign. (It is anyone’s guess what this implies for bitcoin, an asset that has no cash flow at all.)

The other approach is to look around: are people giddy with excitement? Can the media talk of little else? Are taxi drivers offering stock tips?

At the moment, however, these two approaches tell a different story about US stocks. They are expensive by most reasonable measures. But there are few other signs of speculative mania. The price rise has been steady, broad-based and was hardly the leading news of 2017. Given how expensive bonds are, it is hardly a surprise that stocks also seem pricey. No wonder investors and commentators are unsure what to say or do.

It seems all so much easier with hindsight: looking back, we can all enjoy a laugh at the Extraordinary Popular Delusions and the Madness of Crowds, to borrow the title of Charles Mackay’s famous 1841 book, which chuckles at the South Sea bubble and tulip mania. Yet even with hindsight things are not always clear. For example, I first became aware of the incipient dotcom bubble in the late 1990s, when a senior colleague told me that the upstart online bookseller Amazon.com was valued at more than every bookseller on the planet. A clearer instance of mania could scarcely be imagined.

But Amazon is worth much more today than at the height of the bubble, and comparing it with any number of booksellers now seems quaint. The dotcom bubble was mad and my colleague correctly diagnosed the lunacy, but he should still have bought and held Amazon stock.

Tales of the great tulip mania in 17th-century Holland seem clearer — most notoriously, the Semper Augustus bulb that sold for the price of an Amsterdam mansion. “The population, even to its lowest dregs, embarked in the tulip trade,” sneered Mackay more than 200 years later.

But the tale grows murkier still. The economist Peter Garber, author of Famous First Bubbles, points out that a rare tulip bulb could serve as the breeding stock for generations of valuable flowers; as its descendants became numerous, one would expect the price of individual bulbs to fall.

Some of the most spectacular prices seem to have been empty tavern wagers by almost-penniless braggarts, ignored by serious traders but much noticed by moralists. The idea that Holland was economically convulsed is hard to support: the historian Anne Goldgar, author of Tulipmania (US) (UK), has been unable to find anyone who actually went bankrupt as a result.

It is easy to laugh at the follies of the past, especially if they have been exaggerated for the purposes of sermonising or for comic effect. Charles Mackay copied and exaggerated the juiciest reports he could find in order to get his point across.

Then there is the matter of his own record as a financial guru. That comment, this time in full, “those who sound the alarm of an approaching railway crisis have somewhat exaggerated the danger”, was Mackay himself, writing in the Glasgow Argus in 1845, in full-throated support of the idea that the railway investment boom of the time would return a healthy profit to investors. It was, instead, a financial disaster. In the words of mathematician and bubble scholar Andrew Odlyzko, it was “by many measures the greatest technology mania in history, and its collapse was one of the greatest financial crashes”.

Oddly, Mackay barely mentions the railway mania in subsequent editions of his book — nor his own role as cheerleader. This is a lesson to us all. It’s very easy to scoff at past bubbles; it is not so easy to know how to react when one may — or may not — be surrounded by one.

Written for and first published in the Financial Times on 12 January 2018.

My recent book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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Undercover Economist

Why Microsoft Office is a bigger productivity drain than Candy Crush Saga

A few weeks before Christmas, an impish chart appeared on the Bank of England’s unofficial blog. It compared plunging productivity with the soaring shipments of smartphones. Typical productivity growth in advanced economies had hovered steadily around 1 per cent a year for several decades, but has on average been negative since 2007. That was the year the iPhone started to ship.

Nobody really believes that the iPhone caused the productivity slowdown — a more obvious culprit would be the global financial crisis — but it is hard to find people who think that their phones are an unalloyed blessing. If in 1968 an economist or computer scientist had been told that 50 years later we would all be carrying wirelessly networked supercomputers in our pockets, he or she would have been staggered at the potential. I doubt they would have realised quite how much time we would spend liking Instagram posts, playing Pokémon Go and sending each other digital interruptions.

The costs of this distraction are starting to become apparent. I wrote recently about the research of Gloria Mark of the University of California, Irvine. Prof Mark argues that reorientating yourself after an interruption tends to take between 20 and 25 minutes. We all know how a moment’s inattention can turn into a clickhole of distractions. She also points out that once we get used to being interrupted by others, we start interrupting ourselves, twitchily checking email or social media in the hope something interesting might turn up.

Yet digital devices slow us down in subtler ways, too. Microsoft Office may be as much a drag on productivity as Candy Crush Saga. To see why, consider Adam Smith’s argument that economic progress was built on a foundation of the division of labour. His most celebrated example was a simple pin factory: “One man draws out the wire, another straights it, a third cuts it, a fourth points” and 10 men together made nearly 50,000 pins a day.

In another example — the making of a woollen coat — Smith emphasises that the division of labour allows us to use machines, even “that very simple machine, the shears with which the shepherd clips the wool”.

The shepherd has the perfect tool for a focused task. That tool needs countless other focused specialists: the bricklayer who built the foundry; the collier who mined fuel; the smith who forged the blades. It is a reinforcing spiral: the division of labour lets us build new machines, while machines work best when jobs have been divided into one small task after another.

The rise of the computer complicates this story. Computers can certainly continue the process of specialisation, parcelling out jobs into repetitive chunks, but fundamentally they are general purpose devices, and by running software such as Microsoft Office they are turning many of us into generalists.

In a modern office there are no specialist typists; we all need to be able to pick our way around a keyboard. PowerPoint has made amateur slide designers of everyone. Once a slide would be produced by a professional, because no one else had the necessary equipment or training. Now anyone can have a go — and they do.

Well-paid middle managers with no design skills take far too long to produce ugly slides that nobody wants to look at. They also file their own expenses, book their own travel and, for that matter, do their own shopping in the supermarket. On a bill-by-the-minute basis none of this makes sense.

Why do we behave like this? It is partly a matter of pride: since everyone has the tools to build a website or lay out a book, it feels a little feeble to hand the job over to a professional. And it is partly bad organisational design: sacking the administrative assistants and telling senior staff to do their own expenses can look, superficially, like a cost saving.

But it is also that some of these jobs are a pleasant diversion from the key task at hand. Even filling out expenses may be soothing to some, and designing your own PowerPoint presentation can be quite fun for the presenter, if not for the hapless audience.

Smith worried that repetitive work would make us “as stupid and ignorant as it is possible for a human creature to become”. That risk remains. Technology can unbundle tasks, leaving human workers with grimly narrow duties.

But for other workers, general-purpose computers push back against Smith’s concern. Design a pretty graph, search the internet for cartoons for a presentation, use a price-comparison site to book some travel, craft an eloquent post on LinkedIn, and office life starts to look mildly entertaining — even if there isn’t much time left to do the jobs for which we’re paid. Setting games and social media aside, there are plenty of ways for workers to use their computers to do their jobs less efficiently while having more fun, perhaps without even meaning to.

I suspect this is but a small part of the productivity slowdown. And I feel ambivalent about it. A day full of distractions is rarely satisfying. On the other hand, I would not wish to spend each hour sharpening 5,000 pins.

Written for and first published in the Financial Times on 5 January 2018.

My new book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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Undercover Economist

The world in 2118 – my forecasts for the century ahead

It is the season for journalists to make their predictions for the year ahead. These forecasts are the mince pies of the intellectual world: tempting, enjoyable, but manifestly unhealthy. So let me attempt a loftier task — and one that is consequence free. I’d like to describe the economy not in the year 2018, but in the year 2118.

I’m not the first to attempt a hundred-year forecast. John Maynard Keynes did so in his 1930 essay, “Economic Possibilities for Our Grandchildren”, noting that on average we might expect to be eight times richer in 2030 than a century earlier. We will fall somewhat short of that, but not by much.

I’ll make a more conservative forecast: that we’ll be five times richer in 2118 than we are today. That would put global income at around $80,000 per person — roughly twice the current average salary in the UK today — and income in the leading economies will be more than $250,000 per person per year in today’s money.

This forecast omits and probably understates how much fun one might have with $250,000 in a century’s time. The economist Timothy Taylor sometimes asks his students to reflect on whether they would rather have a comfortable $70,000 today or a stupendous $70,000 in 1900. On paper this is a no-brainer: $70,000 in 1900 was a much larger sum. Yet the question boils down to whether one would rather have servants, status and a mansion — or smartphones, computer games, air conditioning, penicillin, air travel and takeaway pizza. On balance most students decide they’d rather have modern technology than obsolescent opulence.

Similarly, $250,000 a year in 2118 should buy wonders that could not be had today for any money. A new book, Soonish (UK) (US), by Kelly and Zach Weinersmith, is a mischievous guide to the possibilities: ultra-cheap construction, courtesy of smart materials and swarms of robots; and ultra-cheap fuel and bulk chemicals, produced by genetically engineered micro-organisms. We’ll be able to print replacement organs, swallow pills that correct genetic typos and fix cancers with ease.

Is this prediction Panglossian? Perhaps, but it does not presume a century of peace and harmony. It is more cautious than Keynes’s forecast, since which the world has witnessed appalling losses of human life in the Holocaust, Mao’s Great Leap Forward, the second world war and other disasters. We should fervently hope that the atrocities of the 20th century are never repeated, but the forecast merely assumes instead that future enormities do not threaten the human race as a whole. Any nuclear or biological war would have to be a local affair.

The other big question mark over this forecast is whether the planet itself can sustain continued economic growth. Much depends on what this growth looks like. If it means burning more fossil fuels, consuming ever greater raw materials and intensively cultivating more land, we are in trouble. Thankfully, economic growth is decoupling from resource use — not everywhere and not in every respect, but broadly enough to give reason for hope. In the UK, for example, energy consumption per person peaked in 1973.

We need smarter environmental regulations, but even without them, pure profit-seeking pushes producers to achieve more by using less. This is highlighted in Jesse Ausubel’s 2015 report, “Nature Rebounds”, which documents the increasing efficiency with which the US uses farmland, water and energy. In some cases — not all — the efficiency gains are so great that absolute use of these resources is in decline even while economic growth continues.

None of this would be enough if the world’s population was still booming at the rates that caused alarm in the 1960s. But it is not; population growth has been in steady decline for half a century. If the number of people on the planet stabilises, and the efficiency with which we use resources increases, there is nothing implausible about a continued rise in the standard of living.

A final big question is how this bounty will be distributed. In an insightful essay from 1996, Paul Krugman predicted that there would be “no robot plumbers” in 2096. I agreed with him then. I am no longer so confident. It seems quite plausible that in 100 years’ time — and perhaps much sooner — plumbers, taxi drivers and many journalists, too, will simply have nothing serious to contribute to the labour market. If so, we’ll have to abandon the current model of the welfare state in favour of one where unemployment is neither stigmatised nor penurious, but a perfectly respectable lifestyle choice. That will require some kind of universal income for all.

No doubt my forecast will be wrong, although I hope it will take a few decades before its foolishness becomes undeniable. Perhaps by 2118, humanity will have been superseded by hyper-intelligent software. Perhaps cockroaches or smallpox will have taken centre stage. But it seems to me that if we can keep the show on the road, our great grandchildren might have reason to thank us.

Written for and first published in the Financial Times on 29 December 2017.

My new book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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Undercover Economist

Why you should check email less often, and how to do it

More than a decade ago, Dan Russell, a researcher at IBM, won fleeting attention for his email signature: “Join the slow email movement! Read your mail just twice each day. Recapture your life’s time and relearn to dream.” That was quixotic even then. While some people are slow to respond to email, most of us are quick to check it.

A 2003 study found that the typical email is attended to in some manner within six seconds of arrival. Another study, from 2006, by computer scientist Karen Renaud and colleagues, found that people at their desktop computers would check their email 18 times an hour.

When I think about my own behaviour, 18 times an hour sounds about right. It’s like a nervous twitch, with the bonus that I can tell myself and others that I’m the consummate professional. It is also insane: for all the talk of email overload, most of us do not actually receive 18 emails an hour. I don’t — not after filtering unsolicited press releases into spam. One estimate of the typical load is 80-90 emails a day, which suggests that half the time Professor Renaud’s subjects checked email, they would have found nothing there.

The ubiquity of smartphones, packed with an arsenal of e-messaging alternatives, can only have worsened the compulsion to check for new messages. Mr Russell’s plea now seems as counter-cultural as urging people to post sonnets on Tinder. Nevertheless, he was on to something. There are ways in which email might be a lot more useful if we slowed it down.

One reason is that email would probably be less habit-forming when taken in bigger, rarer doses. The psychologist BF Skinner once found himself running out of food pellets for one of his projects, which like many of his experiments involved rats pushing levers to receive rewards. To eke out his supply of pellets, Skinner restricted their release: rats would get no more than one pellet a minute, no matter how often they tapped the lever. Rather than discouraging the rats, this intermittent reinforcement soon had them hooked. These days, we’re the rats, the computer is our Skinner Box, and email is our intermittently released food pellet.

Mr Russell’s call to inaction breaks the cycle of intermittent reinforcement. If you check email no more than twice a day, your unconscious is not wondering whether you’ve got mail or not. Inevitably, you have, and your dopamine system can stop quivering in nervous anticipation.

Slow email also allows problems to solve themselves in your absence. When a colleague emails the entire company asking whether anyone has seen his sentimentally valuable coffee mug, the treasure will be found before anything hits your inbox. Meetings will be announced, withdrawn because of a typo in the date, then re-announced. It’s so much easier to wait.

And slow email should mean more time concentrating on a single task at a time. Gone is the spin-cycle in which we set aside important work to flip open the email browser tab, and then on to Facebook, or Twitter, or Wikipedia or wherever. It takes time to reorient ourselves after these self-interruptions; estimates vary from a few seconds to almost half an hour.

Bearing all this in mind, one might ask what happens when our email is turned off? Researchers Gloria Mark and Stephen Voida conducted just this experiment, observing what happened to 13 workplace guinea pigs when the researchers disconnected their email. The subjects were being watched, electronically tracked and even wearing heart monitors. They became less stressed, stayed on task for longer and spoke to their colleagues more. They sometimes felt a little out of the loop, but they survived the experience.

Unplugging for a full working week might be too much for most of us. It’s certainly too much for me. So twice a day it shall be, just like Victorian letter writers. Or nearly so: in fact late 19th-century London enjoyed hourly deliveries, and a correspondence could bounce back and forth within a day. Letter-writers would often request a reply “By Return Of Post”, exhibiting the same nervous urgency as some of my email correspondents today. Still, there is a qualitative difference between mail once an hour, and mail whenever you happen to press the level for another pellet. We might all benefit by slowing the pace.

But how to do it? One possibility is sheer willpower. Good luck with that. Or you can use some electronic help. For 2018, my resolution is to use Inbox When Ready, a free plug-in for people who access Gmail through Google’s Chrome browser. It blocks excessive access to the inbox, and works alarmingly well at dissuading me from checking my email. I cannot say it has helped with my stress levels just yet. Perhaps I need to give it time.

I wondered what Dan Russell might make of this, so I tracked down what I thought was his current email address and, apologetically, emailed with a couple of questions.

Back came the response: “The email account that you tried to reach is disabled.” Perfect.


Written for and first published in the Financial Times on 22 December 2017.

My new book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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Undercover Economist

William Golding explains Brexit

For educational reading, the British political establishment might pick up something by William Golding, winner of the Nobel Prize for literature in 1983. Lord of the Flies (UK) (US) is his most famous work, with its grim suggestion that the line between innocent children and murderers is thin. For an insight into Brexit Britain’s current predicament after a week of chaos, however, I recommend The Spire (UK) (US).

The book is a study of monomania. Dean Jocelin has visions of adding to his cathedral a 400-foot steeple, an expression of human prayers reaching into the heavens. But the intensity of his ambition blinds him to his other duties and threatens both the cathedral and the community around it. As Jocelin himself admits, “at the moment of vision, the eyes see nothing”.

It is impossible to miss the analogy. The UK is being driven by visionary enthusiasts for Brexit just as surely as Jocelin’s attendants had to bend to his will. Whether their visions are realistic is quite another question. In the summer of 2016 David Davis, the man charged with delivering Brexit, predicted that the UK would be able to negotiate a free trade area “massively larger than the EU” within two years. That was 17 months ago. Whatever Mr Davis was gazing at back then, it wasn’t reality.

Then there are those wretched experts, who tell Jocelin that his spire is impossible. The master builder, Roger Mason, confronts him with an inescapable dilemma: if the spire’s structure is too lightweight, the next storm will blow it down; a sturdier structure will warp the cathedral beneath it, or sink into the swamp. Jocelin berates him for lack of faith; the dean wants to have his cake and eat it.

Nor can evidence dissuade him. When Mason digs into the cathedral’s non-existent foundations, showing Jocelin the soft earth writhing under the weight of the building, the zealot’s faith is strengthened. If the current cathedral stands on foundations of mud, isn’t that proof that miracles are possible?

Brexit, of course, is not only possible but almost inevitable. But the promises that have been made cannot be fulfilled any more than Jocelin’s spire could safely be built. We cannot “have access” to the single market (that is, remain in it) while also ending freedom of movement; we cannot leave the customs union without introducing a customs border. The discovery of the week — surprising to nobody who has been paying attention — is that this customs border can be located on neither land nor sea.

Jocelin ignores the experts. “I thought it would be simple,” he says. “I had to build in faith, against advice. That’s the only way.” And it proves all too easy to ignore those who might restrain him. One faithful priest, “Father Anonymous”, is too boring to notice. In another life, perhaps he would have been an economist. Others, Jocelin remarks sharply, would profit if the project was thwarted. It is true that sometimes the experts have an eye on their own finances. They may nonetheless be right.

Admittedly, pure determination sometimes finds a way. Monomaniacs change the world, sometimes for the better. One recalls the description of Steve Jobs in his early years at Apple, generating a “reality distortion field” that could redefine what was possible by “sheer mental force”.

Even The Spire was inspired not by folly, but by a triumph. For more than 15 years Golding was a teacher in the shadow of Salisbury Cathedral, whose 404-foot spire has been the tallest in the country for nearly five centuries. Perhaps long-forgotten experts once warned that it could never be built.

Whether Brexit eventually turns into something worth admiring will be for future historians to judge. For now, Golding invites us to ponder the cost. Jocelin’s ambition requires an army of builders to deliver it; that army murders an innocent person.

“Let it be so,” says Jocelin to the heavens. “Cost what you like.”

The project takes a toll in ways that blinkered Jocelin did not consider and takes too long to notice. Letters from allies go unanswered. Urgent business is postponed. The cathedral starts to die; the congregation leaves. Observers of British politics will not find the parallel hard to discern: the centre ground has been hollowed out, the economy is faltering, respect for basic norms of truth-telling are in tatters, and the union itself is under strain.

Jocelin slowly realises the toll his project is taking on those around him, but since he is doing the work of God, any price must be worth paying. British politicians obey the will not of God, but of the British people as expressed in a referendum. It seems to amount to the same thing.

In the end, Jocelin is stripped of his job and his dignity. The long-predicted storm comes. Reality asserts itself. The vision, the visionary and the spire itself crack under the strain. “I thought I was doing a great work,” Jocelin confesses. “And all I was doing was bringing ruin and breeding hate.”

And yet the spire does not fall. That is where Golding leaves us: the project cannot go on, but it cannot be undone. Disaster hangs in the air. “Has it fallen yet?” asks the stricken Jocelin. Not yet.


Written for and first published in the Financial Times on 8 December 2017.

My new book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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Could we run the economy with an app?

The control room is hexagonal, containing a circle of white fibreglass swivel-chairs with red-brown cushions and inbuilt push-button panels. The room is reminiscent of Star Trek, but it is no film set. Project Cybersyn was an attempt in the early 1970s to algorithmically manage the Chilean economy in accordance with democratic socialist principles under President Salvador Allende.
The idea was not entirely a new one. Between the wars, economists debated the “socialist calculation” problem: could a benevolent central planner somehow coordinate all the production and consumption necessary to run a modern economy, bypassing the greed and waste of the market with a more rational system?
The answer was not obvious to economists – at least, not then. The uncompromising Ludwig von Mises argued that it was logically impossible, others that it was merely impractical. But Oskar Lange argued that it could be done: if an economy could be described as a series of simultaneous equations for supply and demand, then the central planner could solve those equations, if only by trial and error.
This proved easier said than done. Nobel laureate Leonid Kantorovich spent six years gathering the data and performing the calculations necessary to optimise Soviet steel production in the 1960s, far too slow to be useful in an ever-changing economy.
Computers promised more. In an essay published after his death in 1965, Lange wrote, “Let us put the simultaneous equations on an electronic computer and we shall obtain the solution in less than a second. The market process… appears old-fashioned.”
That was typical of the awe with which we continue to view these silicon brains. But it was still premature: the computers of five decades ago weren’t fast enough. One credible estimate is that the Soviet Union produced 12 million types of product at its zenith, a mathematical knot that would have taken decades for a vintage computer to unpick. A modern economy produces perhaps 10 billion.
Chile’s Project Cybersyn never had much chance to prove its worth: like Allende himself, it died when the murderous Augusto Pinochet seized power in Chile in 1973.
It was probably doomed from the start. As described in Eden Medina’s book Cybernetic Revolutionaries (UK) (US), the sleek control room masked the fact that Allende’s government only owned four computers. One of them was a Burroughs 3500, which by coincidence is a type of machine that my own father used to install, keeping himself trim by lugging around hard drives the size of tumble-dryers. It was still too soon to try to replace the marketplace with a computer network.
But the project’s ambitions no longer seem quite so unfeasible. We shouldn’t underestimate the task: Chile’s GDP in 1970 was about $50bn – perhaps $300bn at current prices. Even now, Amazon’s revenue, $135bn in 2016, is less than that.
But the power of computers is growing far more quickly than economic output. Could we build an app to run an economy, to not only replace Steve Mnuchin and Janet Yellen, Jeff Bezos and Tim Cook, but to oversee the fine details of production and consumption everywhere, eliminating waste, recessions, and inequality?
The idea has resurfaced in the writings of two Chinese economists, Binbin Wang and Xiaoyan Li. Wang and Li argue that modern computers and cheap sensors make it possible to optimise production in real time, personalised to the needs of citizens.
In some ways this has already happened. Advertisements on Google and Facebook are handled by vast algorithmic markets. If you work for Uber or Deliveroo, your boss is an algorithm. But firms have always been islands of planning in a sea of market forces; an economy in which the government controls all the platforms is something quite different.
One enduring obstacle is tacit knowledge. A textbook economy of supply and demand curves is, in principle, the kind of system that can be understood mathematically. But as Friedrich Hayek argued in 1945 there is a great deal going on in any economy that cannot be counted or even described.
Decisions to produce, to consume, and to take a risk trying to create something new, are all taken with the knowledge of “particular circumstances of time and place”. Wang and Li believe that big data make this once-tacit knowledge explicit; I am not convinced.
Then there is the issue of power. Facebook and Google already have too much. What would Stalin have done with such information? Or Pinochet? China is already using the data exhaust collected by Alibaba and TenCent to exert social control.
Hayek himself twice visited Pinochet’s Chile without speaking out about the regime’s abuses; that is indefensible.
But Hayek was right about the power of market prices to coordinate a complex economy steeped in tacit knowledge. Market forces remain a more powerful computer than anything made of silicon. We can shape its inputs and outputs with taxes that penalise pollution, redistribute income, or encourage social goods. But replacing the market with state-run algorithms is an idea that should stay in the realms of science fiction.
Written for and first published in the Financial Times on 1 Dec 2017.

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Economicky words are just plain icky

Why can’t economists just speak plainly and clearly? The dismal science has had an image problem for a long time — long enough for most people to forget that the “dismal science” insult was hurled by the despicably eloquent racist Thomas Carlyle, in an argument over whether black plantation workers should be paid for their work or motivated with the “beneficent whip”.

If you’re arguing with an apologist for racism and he has better lines than you, you’re doing something wrong. True in 1849, true today.

Yet the problem seems to have intensified in the past few years; gone are the glory days of Freakonomics, when every economist seemed an investigator with the cachet of Sherlock Holmes. Now we economists are painted as jargon-spouting spreadsheet jockeys, malevolent string-pulling ideologues, or worst of all, “experts”. What went wrong and what are we going to do about it?

Language is part of our problem. Even in a medium that demands brevity and clarity — Twitter — we seem to be drawn to polysyllabic obfuscations like wasps to jam. Marina Della Giusta and colleagues at the University of Reading recently conducted a linguistic analysis of the tweets of the top 25 academic economists and the top 25 scientists on Twitter. (The top 3 economists: Paul Krugman, Joseph Stiglitz and Erik Brynjolfsson; the top 3 scientists: Neil deGrasse Tyson, Brian Cox, and Richard Dawkins.)

Ms Della Giusta and her colleagues found that the economists tweeted less and had fewer Twitter conversations with strangers. I sympathise, but nevertheless the scientists managed it and the economists did not. The economists also used less accessible language with more complex words and more abbreviations. Both their language and their behaviour was less chatty.

This is true in more formal settings, too. Last year on Bank Underground, a blog for Bank of England staff, analyst Jonathan Fullwood compared the bank’s reports to the writings of Dr Seuss. Long words, long sentences or long paragraphs make for difficult prose. The Cat In The Hat stands at one end of the scale; bank reports at the other.

The World Bank is another culprit: this summer its chief economist Paul Romer made few friends when he berated his colleagues over their feel-good bureaucratese in which projects “are emerging” while “players” are “partnering”, all the while advising “corporate governance and competition policies and reform and privatise state-owned enterprises and labour market/social protection reform”. It is surprisingly easy to write like this when you don’t know what you think, or cannot agree, or dare not say. The result occupies the overlap on a Venn diagram between unobjectionable and incomprehensible.

According to Stanford’s Literary Lab, World Bank reports were not always like this: they once described specific facts (“Congo’s present transport system is geared mainly to the export trade”) and what the World Bank had done to improve them.

We should do better, whether writing a tweet or a report. But there is a reason that this stuff is hard: politics. In most spheres of life people are happy to trust doctors, engineers and scientists to get on with whatever it is they do. Politics changes that: when scientists must communicate ideas about climate change, vaccines, or genetic engineering, they suddenly find themselves dragged into political fights for which they have neither the stomach nor weapons. Scientific literacy is no cure: on contentious topics such as climate change, political polarisation actually increases with education.

Economists, of course, cannot boast the same regard as doctors, engineers and scientists — but they are on contested territory more often. Economics discusses public spending, inequality, regulation, taxes and other topics in the no-man’s-land of a political war. No wonder we hesitate to engage on Twitter; no wonder we write reports that try to please everyone by saying nothing much. We then seem evasive and tedious, so nobody trusts us. But when we set out a position clearly and plainly, we risk being dragged into poisonous squabbles — something that has happened repeatedly during and since the Brexit referendum.

There are no easy answers — although emerging evidence from political scientist Dan Kahan’s research group at Yale University suggests that we might do well by trying to engage people’s sense of curiosity. It is not enough to write with clarity; the great science communicators, from Carl Sagan to David Attenborough, inspire a sense of wonder. If we use a surprising fact as an ambush, that will provoke a defensive response; far better to present an intriguing puzzle. But if we cannot inspire awe, we should at least write clearly — a habit that helps us think clearly, too.

Simplicity alone, of course, is not enough. “We’re going to build a big, beautiful wall and Mexico is going to pay for it,” has the same simple tone as Dr Seuss, although it lacks his compassion. Does it reflect clear, trustworthy thinking? I do not think so, Sam-I-Am.

Written for and first published in the Financial Times on 24 November 2017.

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Undercover Economist

Why the robot boost is yet to arrive

To adapt a 30-year-old quip from the great economist Robert Solow: you can see the robots everywhere except in the productivity statistics. This fact has been puzzling me for a few years now. Productivity growth is disappointing — especially but not only in the UK — and it has been for years. Unemployment is near record lows, and employment is high. All this is the opposite of what one would expect if the robot job apocalypse was upon us.

Yet there is no denying the remarkable advances in various branches of artificial intelligence. The most talked-about example is the self-driving car. This technology has come a long way in a short time, which is more than one can say for the original participants in the 2004 Darpa Grand Challenge, a race sponsored by the US military. With large cash prizes for the first autonomous vehicle to complete a 150-mile course in the Mojave desert, the best effort foundered after just seven miles. The contest became a punchline. Just 13 years later, nobody is laughing about autonomous vehicles.

Then there are deep-learning technologies such as AlphaGo Zero, which took just 72 hours to teach itself to become seemingly invincible at the formidable board game, Go. Alexa, Cortana, Google Assistant and Siri have made voice recognition an everyday miracle. Strides are being made in image recognition, medical diagnosis and translation. There are behind-the-scenes triumphs: deep learning is optimising power-hungry cooling in server farms.

All of this makes the puzzle of high employment and low productivity even more puzzling. Yet there are several ways to resolve it. A simple explanation is that the robot talk is all hype. Computer scientists have been over-optimistic before. Nobel laureate Herbert Simon predicted in 1957 that a computer would beat the world chess champion within 10 years; it took 40. In 1970 Marvin Minsky predicted that computers would have human-like general intelligence “within three to eight years”, a prediction even more inaccurate than Mr Simon’s.

A more encouraging story is that we are understating productivity, for example, by undervaluing the output of services in general and the digital economy in particular, much of which is free and therefore invisible to normal measures of economic output.

A third possibility is that — to borrow an idea from the writer William Gibson — the future has already arrived, but it is unevenly distributed. Perhaps the zero-sum scramble to dominate winner-takes-all markets is simply squandering most of the potential gains.

To tease apart these accounts, a research paper by a team including both sides: Erik Brynjolfsson, an economist well known for his writings on “the new machine age”, and Chad Syverson, one of the leading experts on economic productivity.

The researchers argue that the productivity slowdown is real. It may feel plausible to suggest our data simply are not good enough to recognise that productivity is growing strongly, but the story seems off in a number of ways — most obviously that the productivity shortfall is just too large to be a statistical illusion. Something similar can be said for the zero-sum fight for corporate dominance: it may well be happening, but is it really so wasteful that huge productivity gains simply evaporate?

How, then, to resolve the puzzle? In the simplest way possible: to say, “just wait”. There is no contradiction between disappointing productivity growth now and spectacular productivity growth in the near future.

This is true in the narrow statistical sense that productivity growth tends to bounce around: a bad decade may be followed by another bad decade, or by a good one, and today’s productivity growth tells us little about tomorrow’s.

But it is also true that there tends to be a delay between a technical breakthrough and a productivity surge. The most famous case in point is the electric motor, which seemed poised to transform American manufacturing in the 1890s, but did not realise that potential until the 1920s. To take advantage of the new technology, factory owners had to turn their organisations upside down, with new architecture, processes and training. Prof Brynjolfsson’s early research in the 1990s found companies saw little benefit from investing in computers unless they also reorganised.

If the benefits of today’s new ideas are real but delayed, that may also explain the productivity slowdown itself. Consider the self-driving car: right now it is a research expense, all cost and no benefit. Later, it will start to displace traditional cars, the traditional car industry, and many related businesses from parking garages to automotive repair. Finally, perhaps decades after a self-driving car becomes feasible, the full benefits are likely to be apparent. One does not simply invent a new machine: economic progress requires much more than that.

Perhaps, then, this is a brief lull before an explosion of new technology that will radically reshape the world around us. Or perhaps we are due for another decade or two of disappointment. Either scenario seems possible — and both of them promise an uncomfortable ride.

Written for and first published in the Financial Times on 17 November 2017.

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Undercover Economist

The dangers of dark nudging

“If you want people to do the right thing, make it easy.”

That is the simplest possible summary of Nudge (UK) (US) by Cass Sunstein and Richard Thaler. We are all fallible creatures, and so benevolent policymakers need to make sure that the path of least resistance goes to a happy destination. It is a simple but important idea, and deservedly influential: Mr Sunstein became a senior adviser to President Obama, while Mr Thaler is this year’s winner of the Nobel memorial prize in economics.

Policy wonks have nudged people to sign up for organ donation, to increase their pension contributions — and even insulate their homes by coupling home insulation with an attic-decluttering service. All we have to do is make it easy for people to do the right thing.

But what if you want people to do the wrong thing? The answer: make that easy; or make the right thing difficult. Messrs Thaler and Sunstein are well aware of the risk of malign nudges, and have been searching for the right word to describe them. Mr Thaler likes “sludge” — obfuscatory language or procedures that accidentally or deliberately encourage inertia. Voter ID laws, he says, are a good example of sludge, calculated to softly disenfranchise. Meanwhile Mr Sunstein has written an entire book about the “ethics of influence” (UK) (US).

And as we are starting to realise, Vladimir Putin is well aware of the opportunity that behavioural science presents, too. Rumours circulate that the Russian authorities are keen recruiters of young psychologists and behavioural economists; I have no proof of that, but it seems like a reasonable thing for the Russian government to do. I am willing to bet that not all of them are working on attic-decluttering.

According to Richard Burr, chair of the US Senate intelligence committee, Russian troll accounts on Facebook managed to organise both a protest and a counter-protest in Houston, in May 2016. Americans are perfectly willing to face off against each other on the streets, but if you want it to happen more often, make it easy.

A number of other memes, political advertisements and provocateur accounts — both left- and rightwing — have since been identified as of Russian origin. Social media networks have unwittingly sold them air time; news sites have cited them; people have shared them, or spent effort refuting them. Nudge isn’t the word for this, but neither is sludge. What about “grudge”?

The Russians are not alone in using grudge theory to manipulate public opinion. Three social scientists — Gary King, Jennifer Pan and Margaret Roberts — recently managed to infiltrate networks of shills in China, who are paid to post helpful messages on Chinese social media. (Their nickname is the “50 cent army”.) Unlike the Russian trolls, their aim has been to avoid engaging “in debate or argument of any kind . . . they seem to avoid controversial issues entirely”. The tactic is, rather, to keep changing the subject, especially at politically sensitive moments, by talking about the weather, sports — anything. If you want potential protesters to make cheery small talk instead, make it easy.

Just as noble tools can be turned to wicked ends, so shady techniques can be used to do the work of the angels. For example, why not disrupt online markets for illegal drugs by leaving bad reviews for vendors? Research by social scientists Scott Duxbury and Dana Haynie suggests that because people rely on user reviews on illicit markets, law enforcement officers could attack those markets by faking negative reviews, thus undermining trust.

The parallel with Mr Putin is alarmingly clear: it is possible to attack democracy and rational discourse by creating an information ecosystem where everyone yells at everyone else and nobody believes anything.

But we should not give too much credit to Mr Putin. He did not create the information ecosystem of the western world; we did. The Russians just gave us a push, and probably not a very big push at that. Perhaps I should say they gave us a nudge.

Social media do seem vulnerable to dark nudges from foreign powers. But more worrying is our vulnerability to smears, skews and superficiality without any outside intervention at all. Messrs Sunstein and Thaler ask policymakers to make it easy to do the right thing; what have we made it easy to do?

It is easy to find a like-minded tribe. It is easy to share, retweet or “like” something we have not even read. It is easy to repeat false claims. It is easy to get angry or personal.

It’s less easy to distinguish truth from lies, to clear time and attention to read something deep, and to reward an important article with something more than a digital thumbs up. But then, none of this is fundamental to the business model of many media companies — or of the social media networks that spread the news.

Nudge, sludge or grudge, we can change this. And we should start by asking ourselves whether when it comes to news, information and debate, we have made it difficult to do the right thing — and all too easy to stray.


Written for and first published in the Financial Times on 10 November 2017.

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A way to poke Facebook off its uncontested perch

We need to talk about Facebook. Google (or Alphabet, if you prefer) is more ubiquitous; Apple makes more money; Amazon is a more obvious threat to the bricks-and-mortar economy; yet there is something uniquely troubling about the social media leviathan.

One concern is Facebook’s unwholesome contribution to our diet of information. Because what we see in Facebook is a function of what our friends share, the site echoes our prejudices. This effect is accentuated — at least modestly — by Facebook’s own algorithms, which have learnt to show us more of what we like to keep our eyeballs on the site.

Then there is accuracy. Whether what we are shown is true or false does not much matter for Facebook’s business model, unless we start to show more interest in not being lied to. For now, fake news entrepreneurs have realised that it is far more profitable to invent eye-catching fables than to research and confirm the everyday truth.

We are also beginning to realise that Facebook is the perfect vector for carefully-targeted advertisements containing dark political smears. A false claim in a TV spot or the side of a campaign bus can be challenged; a false claim carefully targeted to a few thousand voters in a swing state may go unchallenged and, for that matter, unnoticed except by the intended few.

These problems are sometimes exaggerated, and are not Facebook’s alone: Twitter is politically polarised; Google also shows targeted ads; and few Facebook news feeds are as relentlessly blinkered as the pages of a British tabloid newspaper. But Facebook bundles them into a uniquely powerful package.

And the inconvenient fact is that Facebook seems to make us miserable. We log on like joyless addicts, two billion of us each month. I doubt that we truly value Facebook. But we use it anyway. Writing in the London Review of Books, John Lanchester cites numerous studies that suggest Facebook use goes hand in hand with envy and sadness, and quite plausibly causes them. It is also a notorious time-sink and source of distraction.

None of this is good, unless you are Facebook. But behind all these injuries is a final insult: there is no serious alternative. Buyers of Microsoft’s Office and Apple’s iPhone could choose something else. Even dominant services such as Google’s search or Amazon’s store could in principle be challenged. It would be no easy thing to build a better rival, but anyone who did would be just a click away.

In contrast, making a superior social network app is not enough to unseat Facebook: the main appeal of the site is that everyone already uses it. A rival social network would need to somehow attract groups of users en masse, an extremely difficult prospect. Two of the companies that were managing it — WhatsApp and Instagram — were bought by Facebook. It is hard to understand why regulators thought these mergers were benign.

The lack of competition may explain why Facebook retains its grip on our attention despite being clunky and pernicious; a company that faces no serious competition can afford to stop worrying about keeping its users happy. It is easy to imagine a better social network than Facebook: more privacy, a slicker interface, and less fake news. It is not so easy to see how such a rival could tempt entire social groups to migrate together.

Could regulators change this? Perhaps. They could certainly have been more aggressive in scrutinising mergers. But traditional measures such as price regulation seem less relevant to what is, after all, a free service.  Instead, we should ask ourselves if we can find a way to re-introduce serious competition in social networking.

Luigi Zingales and Guy Rolnik of the University of Chicago have proposed an intriguing idea. They build on the concept of “number portability”, the principle that you own your own phone number, and you can take your number with you to a different phone provider. The idea has promise in retail banking.

Zingales and Rolnik suggest an analogy: social graph portability. The idea is that I could take my Facebook contacts with me to another service — call it “ZingBook”. I could read their Facebook posts on ZingBook and they could see my ZingBook posts over on Facebook.  I can send emails from any program or service provider to any other, so why not guarantee interconnection between social networks? I would get whatever it was I liked about ZingBook while maintaining contact with my own social network back on Facebook.

In practice, the Zingales/Rolnik idea faces serious stumbling blocks — making the technology work, preventing cheating, and navigating permissions. If a friend decides to move over to, say, NaziBook, will he still receive my Facebook content? Will I even know where my words are now being viewed?  But the idea of social graph portability squarely addresses one of the big issues of 21st-century economic policy. The new tech titans need serious competition. For a social network, serious competition needs new rules to enable it.
Written for and first published in the Financial Times on 3 November 2017.

My new book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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