Tim Harford The Undercover Economist
    “Every Tim Harford book is cause for celebration. He makes the ‘dismal science’ seem like an awful lot of fun.”
    – Malcolm Gladwell, author of “The Tipping Point”
  • Adapt – Why Success Always Starts with Failure

    “A highly readable argument... Very impressive”
    – Nassim N Taleb, author of “The Black Swan”
  • Dear Undercover Economist
    “Harford has a knack for explaining economic principles and problems in plain language and, even better, for making them fun”
    – The New York Times
  • The Logic of Life
    “Highly readable, funny and daringly contentious... a whopping good time.”
    – The San Francisco Chronicle
  • The Undercover Economist
    “Required reading”
    – Stephen J. Dubner, co-author of “Freakonomics”

A Christmas reading list

A few books that I’ve been enjoying recently…

Lyonesse (US) (UK) by Jack Vance – I recently re-read this in preparation for a forthcoming discussion on the Fictoplasm podcast. It really is magnificent – the finest fantasy trilogy out there. Vance is witty, he’s inventive, and joyful. His bad guys are truly wicked, his heroes and heroines are compelling, and his fairies are utterly mysterious. The dialogue is as distinctive and enjoyable as anything in Tarantino.

The Undoing Project (US) (UK) by Michael Lewis. I have a review coming soon of this book in the Financial Times. It’s a biography of the great psychologists Daniel Kahneman and Amos Tversky, and it’s nearly perfect – an odd and unnecessary opening chapter, but just start at chapter two and you’ll love it. Kahneman and Tversky are fascinating characters; Kahneman won a Nobel memorial prize and wrote the excellent Thinking Fast and Slow (US) (UK). I thought I knew a fair bit about their collaboration but Lewis’s story is full of surprises and no small degree of tragedy.

Newly crossed my desk, Jonathan Portes’s 50 Ideas You Really Need To Know About Capitalism (US) (UK) is presented, as you might expect, in bite-sized chunks. No spellbinding narrative here but that was not the aim. Portes is knowledgeable and the chapters are sharp and clear and full of interesting nuggets.

And, I’ve mentioned it before but Steven Johnson’s Wonderland (US) (UK) is on form – a playful and surprising guide to how play, puzzles and delight have shaped innovation.

Einstein’s Greatest Mistake (US) (UK) by David Bodanis is a great short biography with some super storytelling.

And finally, it would be perverse of me to omit my own book, Messy. Happy reading!

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6th of December, 2016MarginaliaComments off
Undercover Economist

Why forecasters failed to predict Trump’s victory

British Remainers watched the US presidential campaign with an uneasy sense that they had seen it all before: brazen lies from a populist movement, experts lining up to attest that all sensible people agree on what should be done … Those of us who saw the EU referendum campaign up close have been well prepared for the possibility of a Trump victory. US Democrats had less of a visceral warning and so were more surprised.

The truth is that once Trump had secured the nomination, a Trump presidency was always a strong possibility. The betting markets seemed to recognise this, offering odds of three-to-one a week or so before the poll. Three-to-one shots happen all the time — or at least, about a quarter of the time. A defeat for Hillary Clinton may be far more consequential than a defeat for Manchester City and, therefore, far more shocking but it shouldn’t be any more surprising. Favourites do not always win.

Forecasting is a tough job but we make it harder than it has to be by committing some familiar cognitive errors. So what are the lessons that we should learn?

First, wishful thinking has struck again. After the Brexit vote, I described the research of the economist Guy Mayraz. At Oxford university’s Centre for Experimental Social Science, Mayraz ran experiments in which participants were told that they were either “farmers”, who would be paid more if wheat prices were high, or “bakers”, who would be paid more if wheat prices were low. They were then shown a graph, purportedly tracking the wheat price, and invited to forecast the future price, with a cash reward for accurate forecasts. Despite the fact that they were being paid for accuracy, the farmer-participants systematically forecast higher wheat prices than the bakers. Everyone predicted what they hoped would happen. Does that sound familiar?

The second lesson is that — as a large experiment conducted by the Good Judgment Project has shown — self-critical, open-minded forecasters do a better job than narrow-minded, overconfident ones. Of course that is obvious — except that open-mindedness is a quality in short supply. Dwelling on our own fallibility is like dwelling on our own mortality: most people find it uncomfortable, so we don’t do it.

Whether you’re sinking a beer with friends or prognosticating on cable news, the social pressure is to make an interesting, confident statement rather than hum and haw about all the ways in which you might be wrong. Confident, eye-catching forecasts are the snack food of analysis and commentary: everybody knows they’re doing us no good but we can’t seem to resist.

It was interesting to see the self-critical dynamic in action at Nate Silver’s political forecasting website FiveThirtyEight. I interviewed Silver at a public event when he was riding high after successful forecasts in 2012. The audience questions were fawning but I was impressed at how Silver kept emphasising that he’d been lucky and future forecasts would be harder.

This time round, FiveThirtyEight botched the analysis of the Republican nomination: the polls said Trump was clearly ahead but nobody could quite believe that. Yet the early failure provoked some introspection. FiveThirtyEight learnt a lesson. While other forecasters were writing off Trump in the presidential race, FiveThirtyEight kept looking at the polls, and continued to declare that it was close.

A third lesson is that we have to keep an open mind that more than one outcome is possible. Too many people equated “Clinton is the favourite” with “Clinton will win”. That’s an obvious error, but it’s common. Even expert forecasters often treat a strong possibility as though it is a certainty. This tendency is one reason that dart-throwing chimps give the experts a run for their money. The chimps make lots of forecasting errors too, but at least they don’t systematically overrate their chances.

Perhaps the best way to keep more than one outcome in mind is to develop scenarios. I’ve written before about the scenario-planning method: scenarios are persuasive, coherent stories about the future, and like all good stories they have a tendency to stick with the listener. A scenario-planner will create at least two contradictory stories — this helps people to keep an open mind, and to prepare for more than one outcome.

FiveThirtyEight does not quite embrace scenario-planning but it did produce a clear account of the kind of polling error that would be necessary to deliver a Trump win — along with a reminder that such polling errors are ubiquitous. Clinton was the favourite even for FiveThirtyEight, but the site presented its readers with a very clear description of how the less-likely prospect of a Trump win would unfold, if it were to happen.

Scenario-thinking is not really intended to produce better forecasts — although I think it does no harm. What it should deliver is preparedness. Trump’s victory has caught a lot of people napping; that’s strange. We take precautionary measures against far less likely events than the victory of a presidential underdog.

Amid many depressing features of the politics of 2016 has been our failure to prepare for perfectly foreseeable possibilities. If there is a silver lining, it’s this: the uncertainties are not going away, so it’s not too late to learn.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

The best ways to combat bias from Airbnb to eBay

Six months ago, tech entrepreneur Rohan Gilkes tried to rent a cabin in Idaho over the July 4 weekend, using the website Airbnb. All seemed well, until the host told him her plans had changed: she needed to use the cabin herself. Then a friend of Rohan’s tried to book the same cabin on the same weekend, and his booking was immediately accepted. Rohan’s friend is white; Rohan is black.

This is not a one-off. Late last year, three researchers from Harvard Business School — Benjamin Edelman, Michael Luca and Dan Svirsky — published a working paper with experimental evidence of discrimination. Using fake profiles to request accommodation, the researchers found that applicants with distinctively African-American names were 16 per cent less likely to have their bookings accepted. Edelman and Luca have also published evidence that black hosts receive lower incomes than whites while letting out very similar properties on Airbnb. The hashtag #AirbnbWhileBlack has started to circulate.

Can anything be done to prevent such discrimination? It’s not a straightforward problem. Airbnb condemns racial discrimination but, by making names and photographs such a prominent feature of its website, it makes discrimination, conscious or unconscious, very easy.

“It’s a cheap way to build trust,” says researcher Michael Luca. But, he adds, it “invites discrimination”.

Of course there’s plenty of discrimination to be found elsewhere. Other studies have used photographs of goods such as iPods and baseball cards being held in a person’s hand. On Craigslist and eBay, such goods sell for less if held in a black hand than a white one. An unpleasant finding — although in such cases it’s easy to use a photograph with no hand visible at all.

The Harvard Business School team have produced a browser plug-in called “Debias Yourself”. People who install the plug-in and then surf Airbnb will find that names and photographs have been hidden. It’s a nice idea, although one suspects that it will not be used by those who need it most. Airbnb could impose the system anyway but that is unlikely to prove tempting.

However, says Luca, there are more subtle ways in which the platform could discourage discrimination. For example, it could make profile portraits less prominent, delaying the appearance of a portrait until further along in the process of making a booking. And it could nudge hosts into using an “instant book” system that accelerates and depersonalises the booking process. (The company recently released a report describing efforts to deal with the problem.)

But if the Airbnb situation has shone a spotlight on unconscious (and conscious) bias, there are even more important manifestations elsewhere in the economy. A classic study by economists Marianne Bertrand and Sendhil Mullainathan used fake CVs to apply for jobs. Some CVs, which used distinctively African-American names, were significantly less likely to lead to an interview than identical applications with names that could be perceived as white.

Perhaps the grimmest feature of the Bertrand/Mullainathan study was the discovery that well-qualified black applicants were treated no better than poorly qualified ones. As a young black student, then, one might ask: why bother studying when nobody will look past your skin colour? And so racism can create a self-reinforcing loop.

What to do?

One approach, as with “Debias Yourself”, is to remove irrelevant information: if a person’s skin colour or gender is irrelevant, then why reveal it to recruiters? The basic idea behind “Debias Yourself” was proven in a study by economists Cecilia Rouse and Claudia Goldin. Using a careful statistical design, Rouse and Goldin showed that when leading professional orchestras began to audition musicians behind a screen, the recruitment of women surged.

Importantly, blind auditions weren’t introduced to fight discrimination against women — orchestras didn’t think such discrimination was a pressing concern. Instead, they were a way of preventing recruiters from favouring the pupils of influential teachers. Yet a process designed to fight nepotism and favouritism ended up fighting sexism too.


A new start-up, “Applied”, is taking these insights into the broader job market. “Applied” is a spin-off from the UK Cabinet Office, the Behavioural Insights Team and Nesta, a charity that supports innovation; the idea is to use some simple technological fixes to combat a variety of biases.

A straightforward job application form is a breeding ground for discrimination and cognitive error. It starts with a name — giving clues to nationality, ethnicity and gender — and then presents a sequence of answers that are likely to be read as one big stew of facts. A single answer, good or bad, colours our perception of everything else, a tendency called the halo effect.

A recruiter using “Applied” will see “chunked” and “anonymised” details — answers to the application questions from different applicants, presented in a randomised order and without indications of race or gender. Meanwhile, other recruiters will see the same answers, but shuffled differently. As a result, says Kate Glazebrook of “Applied”, various biases simply won’t have a chance to emerge.

When the Behavioural Insights Team ran its last recruitment round, applicants were rated using the new process and a more traditional CV-based approach. The best of the shuffled, anonymised applications were more diverse, and much better predictors of a candidate who impressed on the assessment day. Too early to declare victory — but a promising start.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

Why economics is a discipline in need of diversity

Does economics have a problem with diversity? The example of Janet Yellen, the most powerful economist in the world, suggests not. But she doesn’t have much company at the top: Christine Lagarde at the IMF is a lawyer; Elinor Ostrom, the only woman to win the Nobel Memorial Prize in Economics, was a political scientist. Even when women win the highest elected office in the land, a woman has never run the US Treasury or been finance minister in either unified Germany or West Germany. Economics, it seems, is a particularly male bastion.

A new survey by Amanda Bayer of Swarthmore and Cecilia Elena Rouse of Princeton puts some firm statistics on this general impression. Looking at the US, the academics find that fewer than 30 per cent of bachelor’s degrees in economics are awarded to women — and the percentage is similar for doctorates.

Is this just part of the age-old problem that women do not study mathematical subjects? In the UK, perhaps: girls are less likely than boys to study A-level mathematics. But in the US, the explanation doesn’t stack up. “Stem” subjects — science, technology, engineering and mathematics — now award more degrees to women than to men at both undergraduate and doctoral level. Economics is a clear outlier.

A similar tale can be told for students who identify as belonging to ethnic groups such as Hispanic, Native American or African American. Such minority groups are less likely to receive economics degrees than degrees in other social sciences, humanities, business studies or Stem subjects. The same is true at doctoral level. There’s no getting around it: economics is, almost uniquely, the preserve of white or Asian men.

Why is this happening? One possibility is the self-perpetuating stereotype. As long as economics professors tend to be white men, women and minority students may feel that the subject just isn’t for them. Survey evidence suggests that women in the US are simply not as likely to find the subject of economics appealing.

There’s also the problem of implicit or explicit discrimination. Here, the evidence is mixed: such discrimination exists but it is not confined to economics. For example, one recent study (by Katherine Milkman, Modupe Akinola and Dolly Chugh) sent 6,500 emails to professors from a fictional student, requesting a 10-minute meeting to discuss applying to a doctoral programme. The emails were all identical except for the race or gender of the imaginary applicant. Generally, emails from white men were more likely to receive a response. But this was true for almost all subjects — economics was not particularly blameworthy.

On the other hand, a 2014 study, “Women in Academic Science”(by Stephen Ceci, Donna Ginther, Shulamit Kahn and Wendy Williams) found that academia had in recent years become a much more level playing field for women than was often claimed. But the study singled out economics as an exception, a subject where well-qualified and productive women continue to miss out on promotions.

If women or people from certain ethnic groups are being denied promotions because of discrimination, then clearly that’s unacceptable. But even if the main story is that economics is simply unappealing to women and to various ethnic minorities, that’s a concern. It’s important that everyone is represented in economics. Partly this is because economists tend to be well paid and at least somewhat influential. (You have to be a really prominent sociologist before the news networks want your opinion on anything much.)

Just as importantly, economics itself needs diverse views. Few endeavours ever benefited from an intellectual monoculture. That is an argument for mainstream economics to engage with other disciplines such as psychology, anthropology, evolutionary biology — and heterodox schools of thought such as Marxism and Austrian economics. But it’s also an argument to engage with people who may see the world differently because of their race, nationality, sexuality, disability or gender.

The obvious reason for this is that when a group of very smart people with similar perspectives find themselves stuck, someone who brings a new intellectual tool or a fresh perspective is far more valuable than one more smart guy in the same mould. (This argument has been brilliantly and rigorously explored by the complexity scientist Scott Page in his book The Difference.)

But there are subtle gains from diversity too. For example, when psychologist Samuel Sommers conducted mock jury trials of a black defendant, with some all-white juries and some racially mixed juries, he found that the mixed juries did a much better job of analysing the information placed in front of them. But this wasn’t just because the black jurors brought a fresh perspective. It was because the white jurors felt under pressure to think rigorously and to justify their views.

This is yet another reason why white guys like me should want to see more diversity in the subject that we love. It’s not just about being fair to everyone. And it’s not even just that people with different perspectives can enrich economics. It’s that when we’re forced outside our cosy group of people who think and look just like us, we become better people.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.


What I’m reading

Steven Johnson’s Wonderland is out this week. It’s vintage Johnson, a fascinating and surprising guide to the history of innovation. Johnson is focusing on the role of delight and play in producing new ideas – from the desire for Indian calico to the tinkering of MIT’s computer gamers. Strongly recommended. (US) (UK)

I loved Maria Konnikova’s The Confidence Game – Konnikova is a great storyteller and completely in touch with the psychological literature. This book explains why we fall in love with con-men. Topical. And it’s an excellent book. (US) (UK)

Dan Ariely’s new short book Payoff offer Dan’s usual combination of wit, wisdom and memorable experiments. I enjoyed it a lot. (US) (UK)

And one from the archives – I spoke on a panel last week with the remarkable Paul Seabright and was reminded just what a superb book Company of Strangers is. Seabright asks the question – how did we evolve from being violent, suspicious apes to a species capable of amazing feats of cooperation and trade? And how close to the surface are the violent, suspicious apes? (US) (UK)

A reminder that my new book Messy would make the perfect Christmas present – and that my new radio series Fifty Things That Made the Modern Economy is in full swing and you can subscribe, free, to the podcast if you wish.

Meanwhile, under the circumstances, you might want to invest in a copy of Leonard Cohen’s The Future (US) (UK) – “Give me absolute control over every living soul, and lie beside me baby, that’s an order…”

15th of November, 2016MarginaliaComments off
Undercover Economist

Rich the banker? What’s not in a name…

Somebody recently pointed out to me a striking fact: being named Dennis makes people more likely to become dentists. The idea is utterly splendid. It’s also untrue, and has been known to be untrue for five years. The fact that the claim is repeated by knowledgeable people tells us something important about the way that ideas spread.

Back in 1994, New Scientist magazine drew attention to the author of a book about the polar regions, Daniel Snowman. An avalanche of apt names followed: the incontinence experts JW Splatt and D Weedon; Manchester Ship Canal scholar Sue Grimditch; highly paid bankers Rich Ricci and Bob Diamond; prison reformer Frances Crook; and, of course, the former Lord Chief Justice, Lord Judge. The idea of nominative determinism — that your name determines your fate — spread because it was fun.

But then social psychologists started to take the idea seriously. The theory of “implicit egotism” is that people are unconsciously attracted by things that remind them of themselves — and, in particular, to echoes of their own names. Dennis would tend to pursue dentistry, while Laura would be tempted to become a lawyer. Georgina would move to Georgia, and Erica would be more likely to accept a proposal of marriage from Eric than from Bob.

The source of the Dennis/dentist claim is not some urban myth: it’s a peer-reviewed article published in 2002 in the Journal of Personality and Social Psychology. That article found that although Dennis, Walter and Jerry are equally popular names, there are almost twice as many people named “Dennis” working as dentists as there are people named Walter or Jerry. Other studies found that people were disproportionately likely to marry someone with a similar last name, and to move to areas resembling their name. These findings are not only recycled among casual consumers of pop psychology, they’re in leading psychology textbooks.

But, in 2011, the psychologist Uri Simonsohn published a review of the evidence for nominative determinism. Simonsohn, an important researcher in his own right, is increasingly carving out territory as a debunker of shaky ideas in psychology.

Simonsohn found that the Dennis/dentist connection is a statistical artefact — as can clearly be seen by the fact that Dennis is a more popular name than Walter, not only for dentists but for lawyers. This is because while Walter is just as common a name as Dennis, it is particularly common among elderly gentlemen who have passed retirement age. Dennis is not just more likely than Walter to be a dentist; he’s more likely than Walter to have any job at all.

Another curious finding is that George and Geoffrey seem oddly likely to do doctoral research in geosciences. Evidence for nominative determinism? No. These genteel Geo names are even more over-represented in other sciences.

What about marriage? Do people with the same or similar names tend to marry each other? Yes — but not necessarily because the name itself is attractive.

The first thing to understand is that if people married totally at random, we would expect only a few same-surname matches to occur. Because the baseline is low, a few extra matches are enough to provide (possibly spurious) evidence for the implicit egotism theory. What might explain those extra matches? Looking at data drawn from Texas, Simonsohn finds over 200 same-surname marriages based on just four names: Patel, Nguyen, Tran and Kim. These 200 marriages are easily enough to skew the data, and it’s clear enough that what is going on is simply marriage within immigrant communities.

Then there’s the tale of Candi Nehring, who married Stephen Nehring in 2001. The unconscious attraction of the Nehring name? Hardly. It seems that Candi and Stephen had been married before, divorced and remarried. Whatever the emotional dynamic might have been, I am confident that Candi Nehring didn’t marry her ex-husband because she really liked his surname. Other women marry their former brothers-in-law. And clerical errors can also create false cases of matched-surname marriages.


Enough. Reading Simonsohn’s paper, the big picture emerges long before he has finished his patient dissection of eight separate findings of nominative determinism, and shown that all eight of them appear to be correlations with a more straightforward explanation. The theory of implicit egotism is pleasing nonsense.

So why do people still tell me that Dennis is likely to become a dentist? I think the truth is that nominative determinism hits a mental sweet spot. We chuckle when we hear that a senior judge is called Igor Judge. We’re astonished and delighted to hear that the boffins have gone out and discovered that people really do seek out professions and spouses that echo their own names. It’s a finding that is simple to remember, faintly intuitive and yet surprising enough to talk about to other people. It spreads.

Old ideas die hard — especially when they are interesting and fun. I am told that we live in a post-factual age, and perhaps there are more important things to worry about than whether Dennis is likely to become a dentist. Still, even when the myth is delightful and the truth is dull, the truth still matters.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Fifty Things That Made the Modern Economy

I’m delighted to announce the first episode of my new weekly BBC World Service series, “Fifty Things that Made the Modern Economy”. We present short stories about the people, inventions and ideas that made the economic and financial world around us. Alongside some of the obvious choices such as the diesel engine and the iPhone, we’re trying to offer stories that view the modern economy from a less familiar perspective – including the Ikea Billy bookcase, the bar code, and the TV dinner.

I’m very proud of the episodes we’ve recorded so far. Thanks to producer Ben Crighton, editors Richard Knight and Richard Vadon, and my superb co-writer Andrew Wright. Enjoy!

Podcast here. (Please subscribe, rate on iTunes, etc. etc. – it helps.)

And yes, there will in due course be a scintillating book – perhaps August 2017. I’m working on it…



7th of November, 2016RadioComments off
Undercover Economist

Trump, Brexit, and predictions in an age of uncertainty

If 2008 was a sharp reminder that banking matters, then 2016 has reminded us that politics matters too — and, in both cases, the reminder has not been especially welcome. How should economists respond?

Until recently, both banking and politics tended to be something of a niche interest in the economics profession. This isn’t quite as insane as it might seem: if you want to analyse a complex world, you’re going to have to make some simplifying assumptions. For a generation or more, in rich countries, both banks and politicians have seemed complicated and not terribly important, so many economists have ignored them.

Development economists have paid closer attention to politics and have been rewarded for their efforts. Daron Acemoglu won the John Bates Clark Medal in 2005, and the late Elinor Ostrom, a political scientist, won the Nobel Memorial Prize in Economics in 2009. The reason for their interest is obvious: malfunctioning political institutions are a major reason that poor countries are poor.

In the wake of the Brexit vote, Trumpism, the rise of Marine Le Pen and the coming constitutional referendum in Italy, it no longer seems tenable to ignore the economic effects of politics in the western world. But how best to take them into account?

Some economists argue that financial markets are actually an excellent window into politics. For example, Justin Wolfers, an economist at the University of Michigan, tracked US stock futures prices during the first presidential debate. Stocks rose as Hillary Clinton got the better of Donald Trump, and betting markets upgraded the prospect of a Clinton victory. Implicitly, the market was saying that a Trump presidency would knock more than 10 per cent off the profitability of corporate America — and was relieved to see that risk fading.

Several other economists have looked at sharp political discontinuities to estimate the value of political connections — for example, when Senator Jim Jeffords left the Republican party in 2001, handing control of the Senate to the Democrats, this surprise was reflected by a dip in the share price of companies with political connections to the Republicans. And the share price of companies linked to Democrats suffered when a judicial ruling decided the tight 2000 election in favour of George W Bush.

I want to believe that looking at financial markets helps us understand politics and policy — but markets are hardly omnipotent. They struggled to predict the Brexit vote and are now struggling to predict its consequences. The pound did little more than wobble when Leave took a lead in the opinion polls — and the FTSE 100’s collapse, followed by a swift recovery, suggests a knee-jerk reaction rather than cool calculation.

Even if markets were properly pricing in the available information, sometimes that information isn’t much to go on. Trump’s estimated chances of winning the presidency, for example, have gyrated wildly, because the polls have also gyrated wildly, in turn because significant new information seems to burst over the horizon every few days. In any case, it’s impossible to say what he would actually do if elected, because what few policies he has are barely credible.

The UK’s new prime minister Theresa May has also revealed little about her negotiating position regarding Brexit. What little she has said sounds recklessly hardline, but that may merely be pandering to her own party membership. Or not. The scope of possible outcomes is narrower than it seemed on the day after the referendum result — but it is still very wide.

For economists, an alternative response to all this uncertainty is to focus on measuring the uncertainty itself. One option is to use an index such as the Vix, which rises when traders are willing to pay a lot to insure themselves against sharp market moves, and falls when such insurance is cheap.

Or one could turn the mutterings of journalists into hard data: Scott Baker, Nicholas Bloom and Steven Davis have constructed indices of political uncertainty based on an analysis of newspaper articles mentioning relevant terms. The US index has tended to rise since 1960. This may be because journalists write differently, of course — but Baker et al believe it is because the US government has become bigger, more complex and more polarised, meaning that election results are more economically consequential.

A “global” index — based on newspapers from 16 major economies — has been higher over the past five years than it was during the financial crisis, which suggests that, unlike with the Vix, the researchers are picking up something separate from pure economic uncertainty.

All this uncertainty is exciting for political pundits, and presumably satisfying for those voters who rejected the status quo. Is it just noise, or does uncertainty itself have an economic impact? The evidence suggests that it does.

Armed with a variety of different indicators of uncertainty, a separate study by Nicholas Bloom concludes that it tends to spike during recessions. The recession, of course, may be the cause of the uncertainty but Bloom argues that the causation runs both ways: uncertainty also causes recessions because it makes consumers, employers and investors hesitate before spending money. And if we all hesitate, that is exactly what a recession looks like.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Newsnight film featuring Brian Eno

I made a short film for BBC’s Newsnight.  Lots of fun:

(If the embed function doesn’t work you can try this.)

1st of November, 2016HighlightsVideoComments off
Other Writing

How the shock of Brexit could make the British economy stronger

In 1975, the American jazz pianist Keith Jarrett found himself in an unenviable position. Shortly before beginning one of his improvised solo performances, he discovered that some backstage bungle had left him with an old rehearsal piano. It was out of tune, tinny and had sticky keys and pedals. After protesting and realising nothing could be changed, he decided to play anyway. The flaws in the piano pushed him to play in a new style, discovering fresh ways to express himself. And against all expectations — certainly against Jarrett’s — the result was a masterpiece: The Koln Concert album.

I have been thinking about the unplayable piano a lot since Britain voted to leave the EU. By any conventional analysis Brexit was an act of economic self-harm. But by any conventional analysis, a creaking little piano does not make for great music either. Might the UK economy somehow burst into a display of unexpected virtuosity in unpromising circumstances? Let us review the sticky keys and see what fresh tunes might be playable.

First, immigration. The debate on this has taken a xenophobic turn but the pure economics of tighter immigration also looks challenging, particularly for agriculture, catering, the National Health Service and higher education. Since EU migrants have more than paid their way, discouraging them will also weigh on public finances.

Second, trade. We don’t know what the post-Brexit trade landscape will look like but the UK will find it harder to remain an open economy. It will be more difficult to integrate with pan-EU supply chains, the costs of imports will rise and, while exporters benefit from a weaker pound, they may find themselves facing higher tariffs and, more important, non-tariff barriers.

Third, financial services. London will be a less attractive financial centre hub if it cannot be used as a base to provide financial services across the EU. US banks, in particular, may find Dublin, Frankfurt, Paris or New York to be more sensible vantage points to serve the EU market.

These, then, are the obstacles. What are the opportunities? As labour markets tighten, companies may invest more in skills and particularly in capital: better tools, smarter software and more robots. We may see a more productive economy with higher wages, at least for those who can manage the robots rather than be replaced by them.

If the UK economy cannot integrate smoothly with EU suppliers, that will raise costs but it may also stimulate more local networks. This import-substituting strategy is often associated with the policies of Latin American strongmen but it has occasionally worked.

Is there a bright side from a weaker City? Perhaps. A country that exports a lot of a commodity such as oil can start to suffer from the “Dutch disease”, a condition resulting from a currency so strong that it becomes almost impossible to do anything except pump oil and spend the earnings. In principle, the same thing might occur with a very concentrated industry such as the high finance of the City of London. If the oil — or the high finance — dries up then the exchange rate weakens and other industries can flourish. Perhaps this is part of what we are seeing now as the pound falters, and perhaps the misfortune of the City will be beneficial to other industries such as software or high-tech manufacturing.

There is also the possibility of building affordable houses. Once the country’s tabloid press can no longer blame Brussels about red tape, they may turn their fire on the British regulatory thicket holding back the economy: land use restrictions. If we had built more houses where people wished to live, fewer people would be feeling left behind and blaming Lithuanians for troubles that were engineered in Westminster.

All this suggests a British economy with a larger presence as a producer and consumer of high-tech software and robotics: the Japan of Europe, although hopefully without the quarter-century of economic stagnation. It is not impossible. Data collected by Massachusetts Institute of Technology’s Atlas of Economic Complexity project suggest that the UK has untapped capacity in industries such as cars and precision engineering.

I do not believe in “economic models”. Models are all very well when we are talking about Lego. When it comes to a major 21st-century economy, things are too complicated for that. We will have to see what emerges. The situation looks unpromising but so, too, did Keith Jarrett’s unplayable piano.

First written for the FT’s “Future of Britain” project.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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31st of October, 2016Other WritingComments off
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Tim Harford is an author, columnist for the Financial Times and presenter of Radio 4's "More or Less".
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