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”
Undercover Economist

What raspberry farms can teach us about inequality

Raspberries are a petit-bourgeois crop, while wheat is a proletarian crop — or so says political scientist James C Scott in his remarkable 1998 book Seeing Like a State (UK) (US). That makes it sound as though Scott is musing on matters of taste. In fact, he’s highlighting the link between what we produce, and the political and economic structures that production makes possible. Wheat is a proletarian crop, says Scott, because it works well on industrial farms. Harvesting can be mechanised. Not so easy with raspberries, which are best cared for on a small farm. They are difficult to grow and pick on an industrial scale.

Such distinctions once mattered a great deal. We associate the invention of agriculture with the rise of ancient states but, as Scott points out in a forthcoming book, Against the Grain, much depends on the crop. Wheat is well-suited to supporting state armies and tax inspectors: it is harvested at a predictable time and can be stored — or confiscated. Cassava works differently. It can be left in the ground and dug up when needed. If some distant king wanted to tax the cassava crop, his armies would have had to find them and dig them up one by one. Agriculture made strong states possible, but it was always agriculture based on grain. “History records no cassava states,” he writes.

The technologies we use have always affected who gets what, from the invention of the plough to the creation of YouTube. Economists know this but our analytical tools are not well-suited to distinguishing wheat from raspberries or cassava. The brilliance of gross domestic product is the way it manages to measure all economic activity with the same yardstick — but that is also, of course, its weakness. Nevertheless, we try. Many researchers have examined whether countries with rich endowments of mineral resources — oil, copper, diamonds — tend to do better or worse as a result. The balance of opinion is that there’s a “resource curse”. Why?

Sometimes the problem is obvious enough — for example, natural resources sustained a quarter-century of civil war in Angola, where the government could fund itself with oil while the rebels mined and sold diamonds. Sometimes it’s more subtle: a country that exports a valuable commodity will experience a strengthening of its exchange rate. This makes it harder to sustain any sort of industry that isn’t connected to the commodity itself.

Still, we’ve lacked the statistical tools to paint a compelling picture of these issues, important though they seem to be. Now a new research paper from a team at the Massachusetts Institute of Technology tries to explore how the mixture of products a country produces might influence a critical economic outcome: income inequality. The team includes César Hidalgo, author of Why Information Grows (UK) (US), about whose work I’ve written several times. Over the past few years, Hidalgo has been trying to map what he calls “economic complexity”, using statistical techniques from physics rather than economics.

Complexity isn’t straightforward to measure — is a million dollars of reinsurance more or less complex than a million dollars of liquefied natural gas or a million dollars of computer games? Hidalgo’s method looks at a country’s merchandise exports. Sophisticated economies tend to export many different products, including the most complex. Complex products tend to be exported only by a few economies.

In previous work, Hidalgo and colleagues have shown that economic complexity is correlated with wealth, but there are some economies that are spectacularly sophisticated but only modestly wealthy (South Korea is one) while other economies are very rich but not especially sophisticated (such as Qatar). This new analysis finds a relationship between inequality and lack of economic complexity.

Holding other things constant, the simplest economies tend to be the most unequal; the more sophisticated ones tend to be more equal. It’s raspberries and wheat all over again. Or, if you prefer, the difference between a business such as oil (which employs a few people at high wages), textile work (which generates lots of jobs, but at low wages) and making precision components (which requires many skilled and well-paid workers). The oil-based economy will tend to be the most unequal, while the precision-engineering economy will tend to be the most equal.

There are exceptions: Australia’s economy is surprisingly simple thanks to a dependence on natural resources, but not especially unequal. Mexico is an outlier in the other direction, with a sophisticated but unequal economy. This research answers some questions and raises others. There’s a large and unsatisfying literature on the relationship between inequality and growth. Are unequal societies dynamic and entrepreneurial or dysfunctional patron-client states? The MIT study suggests that what’s been missing from these questions is a measure of economic complexity.

And what about financial services? They seem both sophisticated and highly unequal — an exception to the rule? Hidalgo’s data are silent on the topic. But Hidalgo himself isn’t persuaded that banking is particularly complex.

“Most countries have financial services,” he tells me. “But few countries know how to design new microprocessors or new medicines.” By that measure, and others, he thinks financial services are cruder than we tend to think. Perhaps. If so, the City of London has more in common with the oilfields of the North Sea than we are inclined to admit.
Written for and first published in the Financial Times.

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

Free email updates

(You can unsubscribe at any time)

Other Writing

Kenneth Arrow, economist, 1921-2017

Kenneth Arrow, who has died aged 95 at his home in Palo Alto, California, on Tuesday was a towering figure in 20th century economics. In 1972, at the age of 51, he won one of the first Nobel memorial prizes in economics, the youngest winner then or since. Yet even a Nobel Prize understates Arrow’s contribution to economic theory. A brilliant mathematician, he ranged widely, breaking ground in areas that have subsequently yielded many further Nobels, including risk, innovation, health economics and economic growth.

Two achievements are particularly celebrated: his impossibility theorem about the paradoxes of social choice, and his welfare theorems, which formalised the most famous intuition in economics — Adam Smith’s idea that a market produces social good from individual selfishness.

Born in New York on August 23 1921 to immigrant parents, Kenneth Joseph Arrow had his formative experiences shaped by poverty — his businessman father “lost everything” in the Depression. But Arrow flourished at school and received an MA in mathematics from Columbia University at the age of 19. He interrupted his graduate studies to serve as a wartime weather researcher and US Army Air Corps captain.

His doctorate, published in 1951, made up for lost time. The thesis explored the problem of turning individuals’ preferences into a picture of what a society as a whole preferred. Scholars had long known that voting systems could produce perverse results but Arrow went further, showing that the very idea of “what society prefers” was incoherent. He set out four reasonable sounding requirements for building social preferences from individual ones — and proved that no system could satisfy all four of those requirements.

Arrow then turned to the familiar problem of supply and demand. In a well-functioning market for a single good such as apples, there is an efficient outcome with a price at which the number of apples supplied would equal the number of apples demanded.

But that was just one market. It was influenced by the market for pears, for agricultural land, for farm labourers and even for bank loans. Each market pushed and pulled others. What happened when one considered the interactions between every market in the world?

Working at times with the French economist Gérard Debreu, Arrow demonstrated that the intuitions from a single market could be generalised. First, there was a general equilibrium at which prices equalised supply and demand in every market at once. Second, this equilibrium was efficient. And third, any efficient allocation of resources could be reached by redistributing wealth and then letting competitive markets take over. Markets could still fail, but Arrow’s analysis explained the circumstances under which they would succeed.

Alongside such deep theoretical work, Arrow made many contributions to practical economic problems from insurance to healthcare to climate change. On occasion he took an active role on politically contentious issues, and was co-author of the 1997 “Economists’ Statement on Climate Change”, which warned of the dangers of global warming.

He was also noted for his love of gossip and his quick wit. One story tells of Arrow and a colleague waiting for an elevator to take them down, while several passed them going up. The colleague wondered aloud why everyone was going up. The immediate reply: “You’re confusing supply with demand.”

Arrow spent most of his career at Stanford University, apart from an 11-year spell at Harvard. He married Selma Schweitzer in 1947; she died in 2015. He is survived by his sons David and Andrew. He is also survived by his sister Anita, who married Robert Summers, a noted economist and brother of Nobel laureate Paul Samuelson. Her son, Arrow’s nephew, is the former US Treasury secretary Lawrence Summers.
Written for and first published in the Financial Times.


Free email updates

(You can unsubscribe at any time)

23rd of February, 2017Other WritingComments off
Undercover Economist

How to catch a cheat

Should the rules and targets we set up be precise, clear and sophisticated? Or should they be vague, ambiguous and crude? I used to think that the answer was obvious — who would favour ambiguity over clarity? Now I am not so sure.

Ponder the scandal that engulfed Volkswagen in late 2015, when it emerged that the company had been cheating on US emissions tests. What made such cheating possible was the fact that the tests were absurdly predictable — a series of pre-determined manoeuvres on a treadmill. VW’s vehicles, kitted out with sensors as all modern cars are, were programmed to recognise the choreography of a laboratory test and switch to special testing mode — one that made the engine sluggish and thirsty, but that filtered out pollutants.

The trick was revealed when a non-profit group strapped emissions monitors to VW cars and drove them from San Diego to Seattle. In some ways, that’s a crude test: outside the laboratory, no two journeys can be compared precisely. But the cruder test was also the test that revealed the duplicity.

The VW case seems like a strange one-off. It isn’t. Consider the “stress tests” applied by regulators to large banks. These stress tests are disaster scenarios in which a bank calculates what would happen in particular gloomy situations. But, in 2014, US regulators started to notice that banks had made very specific, narrow bets designed to pay off gloriously in specific stress-test scenarios. There is no commercial logic for these bets — but they certainly make it easier to pass the stress test. VW all over again — with the difference that what the banks were doing was apparently perfectly legal.

If tests and targets can fail because they are too predictable, they can also fail because they are too narrow. A few years ago, UK ambulance services were set a target to respond to life-threatening situations within eight minutes of receiving an emergency call. Managers soon realised that they could hit the target more easily if they replaced a two-person ambulance with an independent pair of paramedics on bikes. And many responses were written down as seven minutes and 59 seconds, but few as eight minutes and one second — suspiciously timely work.

Perhaps we’d be better off handing over the problem to computers. Armed with a large data set, the computer can figure out who deserves to be rewarded or punished. This is a fashionable idea. As Cathy O’Neil describes in her recent book, Weapons of Math Destruction (UK) (US), such data-driven algorithms are being used to identify which prisoners receive parole and which teachers are sacked for incompetence.

These algorithms aren’t transparent — they’re black boxes, immune from direct scrutiny. The advantage of that is that they can be harder to outwit. But that does not necessarily mean they work well. Consider the accuracy of the recommendations that a website such as Amazon serves up. Sometimes these suggestions are pretty good, but not always. At the moment, Amazon is recommending that I buy a brand of baby bottle cleanser. I’ve no idea why, since all my children are of school age.

A teacher-firing algorithm might look at student test scores at the beginning and end of each school year. If the scores stagnate, the teacher is presumed to be responsible. It’s easy to see how such algorithms can backfire. Partly, the data are noisy. In a data set of 300,000, analysts can pinpoint patterns with great confidence. But with a class of 30, a bit of bad luck can cost a teacher his or her job. And perhaps it isn’t bad luck at all: if the previous year’s teacher somehow managed to fix the test results (it happens), then the new teacher will inherit an impossible benchmark from which to improve.

Just like humans, algorithms aren’t perfect. Amazon’s “you might want to buy bottle cleanser” is not a serious error. “You’re fired” might be, which means we need some kind of oversight or appeal process if imperfect algorithms are to make consequential decisions.

Even if an algorithm flawlessly linked a teacher’s actions to the students’ test scores, we should still use it with caution. We rely on teachers to do many things for the students in their class, not just boost their test scores. Rewarding teachers too tightly for test scores encourages them to neglect everything we value but cannot measure.

The economists Oliver Hart and Bengt Holmström have been exploring this sort of territory for decades, and were awarded the 2016 Nobel Memorial Prize in Economics for their pains. But, all too often, politicians, regulators and managers ignore well-established lessons.

In fairness, there often are no simple answers. In the case of VW, transparency was the enemy: regulators should have been vaguer about the emissions test to prevent cheating. But in the case of teachers, more transparency rather than less would help to uncover problems in the teacher evaluation algorithm.

Sometimes algorithms are too simplistic, but on occasions simple rules can work brilliantly. The psychologist Gerd Gigerenzer has assembled a large collection of rules of thumb that perform very well in predicting anything from avalanches to heart attacks. The truth is that the world can be a messy place. When our response is a tidy structure of targets and checkboxes, the problems really begin.

Written for and first published in the Financial Times.

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

Free email updates

(You can unsubscribe at any time)


What makes the perfect office?

In 1923, the father of modern architecture, Le Corbusier, was commissioned by a French industrialist to design some homes for workers in his factory near Bordeaux. Le Corbusier duly delivered brightly-hued concrete blocks of pure modernism. The humble factory workers did not take to Le Corbusier’s visionary geometry. They added rustic shutters, pitched roofs, and picket-fenced gardens. And they decorated the gardens in the least modernist way imaginable: with gnomes.
Companies no longer hire star architects to design housing for an industrial workforce. The architects are instead put to work producing the most magazine-shoot worthy office spaces. A pioneer was the uber-cool advertising agency, Chiat-Day, which in 1993 hired the playful Italian architect Gaetano Pesce to create a New York space for them (hot-lips mural, luminous floor, spring-loaded chairs). Their Los Angeles office (four-storey binoculars, brainstorming pods commandeered from fairground rides) was designed by Frank Gehry, whom Chiat-Day’s boss, Jay Chiat, had spotted before Gehry created the Guggenheim Bilbao and became the most famous architect on the planet.
Jay Chiat believed that design was for the professionals. Give workers control over their own space and they would simply clutter up Frank Gehry’s vision, so Jay Chiat decreed that his employees be given tiny lockers for “their dog pictures, or whatever”.
Now everyone is hiring the high priests of architecture. Google has asked Thomas Heatherwick, creator of the 2012 Olympic torch, to create a new Googleplex. Apple’s new headquarters will be a gigantic glass donut over a mile around, designed by Norman Foster and partners.
The most famous corporate architect was not an architect at all: the late Steve Jobs, the boss of Apple, owned much of the film studio Pixar and stamped his taste all over Pixar’s headquarters. Jobs pored over the finest details, choosing an Arkansas steel mill that produced steels of the perfect hue (bolted, not welded).
Jobs believed that a building could shape the way people interacted with each other, and hit upon the notion that Pixar would have just a single pair of washrooms, just off the main lobby. Every time nature called, there was only one place for the entire company to go, and serendipitous new connections would be made.
But what if all these efforts are basically repeating Le Corbusier’s error? What if the ideal office isn’t the coolest or the most aesthetically visionary? What if the ideal office is the one, dog pictures and gnomes and all, that workers make their own?
In 2010, two psychologists conducted an experiment to test that idea. Alex Haslam and Craig Knight set up simple office spaces where they asked experimental subjects to spend an hour doing simple administrative tasks. Haslam and Knight wanted to understand what sort of office space made people productive and happy, and they tested four different layouts.
Two of the layouts were familiar. One was stripped down – bare desk, swivel chair, pencil, paper, nothing else. Most participants found it rather oppressive. “You couldn’t relax in it,” said one. The other layout was softened with pot plants and tasteful close-up photographs of flowers, faintly reminiscent of Georgia O’Keefe paintings. Workers got more and better work done there, and enjoyed themselves more.
The next two layouts produced dramatically different outcomes – and yet, photographs of the spaces would offer few clues as to why. They used the same basic elements and the same botanical decorations. But the appearance wasn’t what mattered; what mattered was who got to decide.
In the third and fourth layouts, workers were given the plants and pictures and invited to use them to decorate the space – or not – before they started work. But in the fourth, the experimenter came in after the subject had finished setting everything out to her satisfaction, and then rearranged it all. The office space itself was not much different, but difference in productivity and job satisfaction was dramatic.
When workers were empowered to design their own space, they had fun and worked hard and accurately, producing 30 per cent more work than in the minimalist office and 15 per cent more than in the decorated office. When workers were deliberately disempowered, their work suffered and of course, they hated it. “I wanted to hit you,” one participant later admitted to an experimenter.
Haslam and Knight have confirmed what other researchers have long suspected – that lack of control over one’s physical environment is stressful and distracting. But this perspective is in stark contrast to those who see office design as too important to be left to the people who work in offices.
At least Le Corbusier had a vision, but many office spaces are ruled instead by an aesthetic that is mean and petty. The Wall Street Journal reported on Kyocera’s clipboard-wielding “inspectors” not only enforcing a clear-desk policy, but pulling open drawers and cabinets, photographing messy contents and demanding improvements. The Australian Financial Review published an 11-page clean-desk manual leaked from the mining giant BHP Billiton; apparently copper and coal cannot be mined if office workers do not respect the limit of one A5 picture frame on each desk. (The frame may display a family photo, or an award certificate, but it was forbidden to display both). Haslam and Knight told of a Sydney-based bank that changed the layout of its IT department 36 times in four years at the whim of senior management.
It is unclear why any of this top-down design is thought desirable. Official explanations are often empty or circular: that clean desks are more professional, or look tidier. In some cases, streamlined practices from the production line have been copied mindlessly into general office spaces, where they serve no purpose. Whatever the reason, it is folly. It can be satisfying to straighten up all the pens on your desk; but to order an underling to straighten their own pens is sociopathic.
When the likes of Steve Jobs or Frank Gehry are in charge, we can at least expect a workplace that will look beautiful. But that does not make it functional. Truly creative spaces aren’t constantly being made over for photoshoots in glossy business magazines. Just ask veterans of M.I.T., many of whom will identify as their favourite and most creative space a building that didn’t even have a proper name, which was designed in an afternoon and built to last just a couple of years. Building 20 was 200,000 square feet of plywood, cinderblock and asbestos, a squat, dusty firetrap originally designed to accommodate the wartime radar research effort, but which eked out an existence as M.I.T.’s junk-filled attic until 1998.
Building 20 was an unbelievably fertile mess. The successes started with the wartime RadLab, which produced nine Nobel prizes and the radar systems that won the second world war. But the outpouring continued for more than half a century. The first commercial atomic clock; one of the earliest particle accelerators; Harold Edgerton’s iconic high-speed photographs of a bullet passing through an apple – all sprang from Building 20. So did computer hacking and the first arcade video game, Spacewar. So did the pioneering technology companies DEC, BBN, and Bose. Cognitive science was revolutionised in Building 20 by the researcher Jerry Lettvin, while Noam Chomsky did the same for linguistics.
All this happened in the cheapest, nastiest space that M.I.T. could offer. But that was no coincidence. Building 20 was where the university put odd projects, student hobbyists and anything else that didn’t seem to matter, producing new collaborations.
And Building 20’s ugliness was functional. The water and cabling was exposed, running across the ceilings in brackets. Researchers thought nothing of tapping in to them for their experimental needs – or for that matter for knocking down a wall. When the atomic clock was being developed, the team removed two floors to accommodate it. This was the result not of design but of neglect. In the words of Stewart Brand, author of How Buildings Learn, “nobody cares what you do in there.”
And that was all Building 20’s residents wanted: to be left alone to create, to make whatever mess they wanted to make. When, inevitably, M.I.T. finally replaced Building 20 with a $300m structure designed by Frank Gehry himself, its former residents held a memorial wake. The new building might have been cutting-edge architecture, but one unhappy resident summed up the problem perfectly: “I didn’t ask for it.”
Of course nobody cares what the people who actually do the work might want or need. Chief executives exult in bold architectural statements, and universities find it easier to raise money for new buildings than for research. And so the grand buildings continue to be built, especially by the most profitable companies and the most prestigious seats of learning.
But we’re often guilty of confusing causation here, believing that great architecture underpins the success of great universities, or that Google flourishes because of the vibrancy of the helter skelters and ping pong tables in the Googleplex. A moment’s reflection reminds us that the innovation comes first, and the stunt architecture comes later.
Remember that for the first two years of Google’s history, there were no headquarters at all. The company’s founders, Sergey Brin and Larry Page, made the breakthroughs at Stanford University. Then came the cliché of a garage in Menlo Park, with desks made from doors set horizontally across sawhorses. The company grew and grew, into one crude space after another – and with engineers always free to hack things about. One knocked down the wall of his office, decided he didn’t like the results, and rebuilt the wall. That made for an ugly space – but a space that worked for the people who worked in it. The spirit of Building 20 lived on at Google.
So how should the ideal office look? In the most prestigious offices at the most prestigious companies, the ones which are being photographed by Wired, the answer to that question is: this place should look the way the boss’s pet architect wants it to look.
But Building 20, and Google’s early offices, and some of the great creative spaces all over the world, suggest a very different answer to the same question: how this place looks doesn’t matter.
Back in 1977, the editor of Psychology Today, T George Harris, put his finger on the problem:
“The office is a highly personal tool shop, often the home of the soul… this fact may sound simple, but it eludes most architects… They have a mania for uniformity, in space as in furniture, and a horror over how the messy side of human nature clutters up an office landscape that would otherwise be as tidy as a national cemetery.”
Harris scoured the academic literature for any evidence that good design helped people to get things done, or to be happier in the office. He couldn’t find it. “People suddenly put into “good design” did not seem to wake up and love it,” he wrote. What people love, instead, is the ability to control the space in which they work – even if they end up filling the space with kitsch, or dog photos, or even – shudder – garden gnomes.
Strangely enough, it was Steve Jobs himself – notorious as a dictatorial arbiter of good taste – who came to appreciate this at Pixar. When he unveiled his plan for the single pair of serendipity-inducing uber-bathrooms, he faced a rebellion from pregnant women at Pixar who didn’t want to have to make the long walk ten times a day. Jobs was aghast that people didn’t appreciate the importance of his vision. But then he did something unexpected: he backed down and agreed to install extra bathrooms.
Steve Jobs found other ways to encourage serendipitous interactions. More importantly, he showed that even on a question that mattered deeply to him, junior staff were able to defy him. Milled Arkansas steels be damned: it is the autonomy that really matters.
“The animators who work here are free to – no, encouraged to – decorate their work spaces in whatever style they wish,” explains Pixar’s boss Ed Catmull in his book Creativity, Inc. “They spend their days inside pink dollhouses whose ceilings are hung with miniature chandeliers, tiki huts made of real bamboo, and castles whose meticulously painted, fifteen-foot-high Styrofoam turrets appear to be carved from stone.”
I suspect that there may be a garden gnome in there, too.


The ideas in this article are adapted from my book “Messy“, which is available online in the US and UK or in good bookshops everywhere.

Free email updates

(You can unsubscribe at any time)

16th of February, 2017HighlightsComments off
Undercover Economist

How being wrong can help us get it right

There’s an academic I know — very well respected — who especially values one of his collaborators. This particular colleague isn’t invaluable because of his creativity or intellect, says my professor friend, but because “he is willing to tell me when I’m wrong, and that’s rare”. It is indeed rare. Perhaps even rarer is the practice of seeking out colleagues because they give frank criticism.

I certainly don’t enjoy being told that I’m wrong. And it seems that I’m not alone. A recently published working paper from Paul Green and Francesca Gino of Harvard, and Bradley Staats of the University of North Carolina, caught people in the act of avoiding criticism. The particular kind of criticism that interested the researchers was where I think I’m doing a good job, and then you tell me that I’m not. (In the jargon, this is “disconfirmatory feedback”.)

Green, Gino and Staats looked at data from an internal peer feedback process in a medium-sized company over several years. They were able to show that when disconfirmatory feedback arrived, workers would then avoid contact with the people who had given them the unwelcome comments. This is the exact opposite of my professor friend’s behaviour — but, I think, a much more typical response. We don’t like it when people tell us that we’re failing.

The irony is that disconfirmatory feedback is the most useful kind of feedback imaginable. If I’m making serious mistakes while cruising along in a complacent bubble of self-satisfaction, I badly need someone to explain exactly what I’m doing wrong. But what I need and what I might enjoy are, of course, quite different.

In certain corners of the business world, it’s become fashionable to talk openly about failure — some would say to “celebrate failure”, although that’s a lazy description. A botched surgical procedure or a fatal traffic accident aren’t things to be celebrated, but they should be discussed, analysed and learnt from. The most obvious way to do this is through a postmortem: all is lost, the project failed, the patient died, so let’s at least try to do better next time.

Less painful, though, is psychologist Gary Klein’s idea of the “pre-mortem”. The pre-mortem is an exercise in which you try to imagine scenarios in which your project fails. Such scenarios are likely to suggest simple ways to prevent disaster.

Alternatively, one can try to learn from other people’s mistakes rather than one’s own. In 2009, Cass Phillipps, a conference producer based in San Francisco, found herself feeling alienated by Silicon Valley conferences packed with gung-ho founders describing their runaway successes. She set up an alternative, “FailCon”, where people came to dissect their failures — in many ways, an enormously more informative experience for attendees.

Phillipps has now stopped organising FailCon — in part, she tells me, because the urgency has gone: “The internet is filled with postmortem stories.” But the basic idea is sound and has spread. For instance, a new book by development economists Dean Karlan and Jacob Appel, Failing in the Field (UK) (US), is simply a catalogue of all the mistakes they’ve made while trying to evaluate projects, and a discussion of what others might do to avoid the same errors.

Still, the real trick, says Cass Phillipps, is to spot and fix your mistake before it becomes fatal. But while “how I failed and what I learnt” is a safe enough topic for a conference or a book, “Help! Help! I need help now!” is a much rawer message.

So I turned to Ashley Good, the CEO of “Fail Forward”, a consultancy that helps organisations turn failures into more productive experiences. I asked her why it’s difficult to cope with failures in real time. One reason: panic.

“Failure tends to push us into a stress response,” she says, and that promptly leads to denial, finger-pointing, self-flagellation, cover-ups or “any number of dysfunctional reactions that limit our ability to learn”. That means that the first step after discovering some major screw-up is to take a deep breath and try to calm down.

The second step, says Good, is to “be respectful and kind”. That’s good advice at any time, of course — but particularly when emotions are running high and there’s a problem to be solved. And a third step is to take some individual responsibility: to ask, “What could I, personally, do differently now to avoid this sort of thing in future?”

Ultimately, the aim of all this is not to “celebrate” a disaster but to make things better, by fixing the current problem, if possible, and by preventing a recurrence. That means asking cool questions about what the problem really is.

When the dancer and choreographer Twyla Tharp earned scathing early reviews for her musical Movin’ Out, she asked a trusted colleague to transform the pile of criticism into a checklist for improvement. This depersonalised the criticism and turned it into a to-do list. And it worked: the revised show won Tony awards and enjoyed a long run.

Tharp has something in common with the professor who values his frankly critical collaborator: both of them recognise that thoughtful criticism isn’t something to be avoided — or, for that matter, something to be celebrated. It’s something to be used.

Written for and first published in the Financial Times.

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

Free email updates

(You can unsubscribe at any time)

Undercover Economist

Remind me what was so great about trade?

When our first child was born, I had an office job. My wife’s exhausting and non-remunerated profession was stay-at-home mother. Later, she retrained as a portrait photographer. To let her return to the labour market, we needed to hire a nanny. There is more to such a decision than money but, on purely financial terms, this was a no-brainer: the nanny earned less than either of us, so by freeing us to earn money in other ways, the Harford household was richer as a result.

Yet what makes obvious sense for a household can become strange and threatening in a different context. Imagine: the proud independent nation of Harfordia had a thriving childcare sector (my wife), but it was undercut by cheap foreign competition (the nanny). There was a vast bilateral trade deficit with the nanny, and Harfordia’s homegrown childcare sector was devastated. Bad!

Though Harfordia’s photography sector boomed as a result, you can bet that’s not what the populists would be pointing to.

Free trade suddenly seems to have few supporters. Some of Britain’s more effervescent Brexiters are free-traders, it is true, but with friends like that, who needs enemies? So I thought it was worth reminding ourselves just what was supposed to be so great about free trade in the first place.

The first and most fundamental insight is that all human civilisation is built on some sort of trade. I’m not much of a farmer but, fortunately, I am able to trade the books I write for food and for the electricity that lets me cook. Even my books rely on others to make the paper, design the word-processing software, bind the pages, design the covers, handle the logistics . . . Some of this I could do myself, albeit slowly and incompetently. Other things I couldn’t begin to attempt.

The second insight is that while international trade seems to involve competing with foreigners, it’s often more illuminating to see it as a battle between domestic producers. My home town of Oxford makes Minis, which we can export in exchange for camembert. But what if a post-Brexit government decides to hammer the camembert trade? It’s not impossible: cabinet minister Liz Truss did once describe the UK’s reliance on foreign cheese as a “disgrace”.

French cheese makers would lose out but so, too, would the Mini factory in Oxford. The French use their camembert to buy our cars; if we’re buying less camembert, it means they’re buying fewer cars.

This isn’t because of any French retaliation. It’s simply a reflection of the fact that there are two ways to make cheese in the UK: the obvious way, using cows, and the indirect way, by making cars and then trading the cars in exchange for cheese. The British cheese industry is, in a very real sense, directly competing with the British car industry. Protect one with a tariff, and you hurt the other.

Economists disagree about most things, but for a couple of centuries they’ve agreed about the merits of free trade, basically for the reasons outlined above. But some readers may be faintly aware of cracks in that consensus — haven’t economists realised that free trade is sometimes bad?

Broadly, the answer is “no” — economists remain thoroughly persuaded of the merits of international trade. But there are cautionary notes. First, modern trade agreements tend to be loaded with rules — food safety, financial regulation, intellectual property — that are not about tariffs. Some of these rules are closely connected with trade itself: long arguments at customs can restrict trade just as surely as a border tariff. But others have little to do with trade, and sometimes the rules are simply bad. So you can favour free trade yet oppose some “free-trade” agreements, as many economists do.

An important paper, “The China Shock”, published by economists David Autor, David Dorn and Gordon Hanson, showed convincingly that US manufacturing sectors that have been particularly exposed to competition from China have been hurt deeply and lastingly. Just like Harfordia’s childcare sector, they’ve been wiped out. That’s not a surprise to an economist. What is a surprise is that, many years after the initial shock, people hadn’t managed to retrain or relocate and find good new jobs. The US economy, more flexible than most, is less flexible than we’d thought.

One can’t help wondering how easy it will be for the UK economy to replace deeply established patterns of inter-EU trade with something more global. Such changes can be wrenching.

But deep down, trade is just another kind of productive technology — a technology that turns Minis into camembert. Like any productive technology, it makes us richer. But it creates winners and losers, and the winners may take their good fortune for granted while the losers are acutely aware of what they’ve lost. The losers have votes too. And if they’re frustrated about China, let’s see what happens if self-driving vehicles put several million truckers and taxi drivers out of work.

We need to find a better response to the strains of the modern world. “Build a wall” is clearly a message that sells, but it’s not a policy that will help. Our international trading system has helped boost both prosperity and peace. It would be a shame if something were to happen to it.

Written for and first published in the Financial Times.

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

Free email updates

(You can unsubscribe at any time)


Undercover Friday 5 – A healthy media diet


Pondering filter bubbles…

Is there, in fact, a filter bubble? Here’s the man who coined the term, Eli Pariser. We need to remember that the biggest filter bubble isn’t Facebook’s algorithm’s or Google’s personalised search. It’s you and me.

…coup or Keystone cops?

Here’s George Bush’s speechwriter David Frum on How to Build an Autocracy.  It’s a chilling read. So is the more excitable take that suggests last weekend was preparation for a coup. But there are two sides to every story, and here’s the view that what we’ve seen is just incompetence. Or perhaps there are three sides to every story: here’s the excellent Timothy Taylor describing the details of the “border adjustment tax” proposal. The tax looks like it’s punishing offshorers and encouraging exporters, although after the currency adjusts the main effect www.bestxanaxcomparison.com should be – if it works – to make tax harder to dodge. In other words, Donald Trump just proposed something that well-qualified mainstream economists think might work rather well.



Daniel Dennett’s Intuition Pumps (UK) (US) is a great read – a bit more philosophical and a bit less self-help than I was expecting. But in any case, good stuff.

And check out Michelle Baddeley’s Very Short Introduction to Behavioural Economics (UK) (US) – a good short survey covering lots of ideas and practical examples.

And another shout out to William Goetzmann’s Money Changes Everything (UK) (US)Fascinating book and a key source for my piece on the warrior-monks who invented banking.

My own book “Messy” is now out and available online in the US and UK.

Free email updates

(You can unsubscribe at any time)

3rd of February, 2017MarginaliaComments off
Other Writing

Undercover Friday – Lies and Statistics

A friendly guide to fake news…

Since this seems as topical as ever, a few interesting titbits. Here’s an attempt by two economists (Gentzkow is widely admired, haven’t encountered Alcott before) to quantify the electoral impact of fake news stories circulating through social media. Here’s the wonderful Maria Konnikova on “Trump’s Lies vs Your Brain” – although it’s not going to cheer you up.  William Davies takes a step back and asked where statistics originally came from, why we no longer seem to trust them, and what comes next. And here’s a brilliant-looking reading list from two academics at the University of Washington on “Calling Bullshit” in the modern age. And my own feature article – almost a year old now, dated in some ways and horrifyingly relevant in others, is “How Politicians Poisoned Statistics“.

Musical recommendation

Try Jimmy Scott, “Holding Back the Years”. (UK) (US) A sublimely restrained cover of Nothing Compares 2U and much else.


I’ve been reading Daniel Levitin’s “A Field Guide to Lies and Statistics” (UK) (US) – so far does what it says on the tin. Clearly written and explained although these will be familiar ideas to many readers of this blog.

Or why not build your own Brutal London? (UK) (US) A papercraft kit of London’s best hunks of concrete.

Discovery of the week, though, is the Alan Moore classic “The Ballad of Halo Jones” (UK) (US). It’s weird and sprawling and flawed and I loved it.

My own book “Messy” is now out and available online in the US and UK.

Free email updates

(You can unsubscribe at any time)

27th of January, 2017Other WritingComments off
Undercover Economist

Brexit as a game of Chicken

At times such as these, I wish I could hear what Thomas Schelling had to say. It might be too much to claim that Schelling was one of the most intriguing characters of the 20th century but he was certainly one of the most interesting economists. He began his career working on the Marshall Plan before advising the administrations of Presidents Kennedy, Johnson and Nixon on nuclear strategy.

As well as studying deterrence, segregation and addiction, he was one of the first economists to ponder climate change. In 2005, he shared the Nobel Memorial Prize in Economics. Schelling died in December 2016 at the age of 95. Schelling was one of the fathers of nuclear non-proliferation, and I think I know what he might have made of Donald Trump apparently welcoming the idea of a new nuclear arms race. But it’s Schelling’s insights on the Brexit negotiations that I’d really like to have.

In his absence, I’m going to have to guess.

First: to be an effective negotiator often means accepting some risk of disaster. The simplest model of this is the game of “Chicken”, in which two leather-clad rebels get into their cars, and drive towards each other at a furious pace. The first one to veer off the road loses his dignity, unless neither of them swerve, in which case both of them will lose a lot more than that.

Chicken is an idiotic game, whose players have little to gain and much to lose. But Chicken teaches us that you can gain an advantage by limiting your own options. Imagine detaching your steering wheel and flamboyantly discarding it as you race headlong towards your opponent. Victory would be guaranteed. Nobody would drive straight at a car that cannot steer out of the way. But here’s a worrisome prospect: what if, as you hurl your own steering wheel out of the window, you notice that your rival has done exactly the same thing?

All this matters because both the UK and the EU are doing their best to give the impression that they’ve thrown their steering wheels away. Control of immigration is non-negotiable, says Theresa May. Fine, says the EU — in that case membership of the single market is out of the question. Fine, says May: we’re out. Don’t let the door hit you as you leave, says the EU.

It’s easy to see why both sides are behaving like this — it’s the logic of Chicken. But the eventual result may be something no sane person wants: a car crash. In May’s recent speech, she set out her willingness to risk such a crash by saying she might walk away without a deal. That does make some sense: it’s how you act if you want to win a game of Chicken. But there are games of Chicken that nobody wins.

That leads to a second insight from Schelling: the difference between deterrence and what he called “compellence”. Deterrence dissuades action, but compellence means persuading or threatening someone so that they do act. In his 1984 book Choice and Consequence (US) Schelling pointed out that deterrence is easier. A deterred person does nothing, so need not admit that the deterrence worked, but a compelled person must visibly acquiesce.

Unfortunately, the process specified under Article 50 leaves the UK in the awkward position of trying to achieve compellence. The default option is the car crash, a disorderly fracture with the EU. Anything else requires all 28 countries involved to take prompt constructive action. May and her chancellor Philip Hammond have made some (faintly) threatening noises about how the EU should play along, but such threats can only work if they compel an energetic and active response. That’s far from certain — compellence is hard.

Of course, a broad, constructive agreement is in everyone’s interest. As May rightly said: “Trade is not a zero-sum game: more of it makes us all more prosperous.” It stands to reason, then, that the EU should embrace free trade in goods and services with the UK — as should the many other trading partners that foreign secretary Boris Johnson tells us are “queueing up” to sign deals with the UK.

To which Schelling might respond: just because a mutually beneficial deal is achievable doesn’t mean it will be achieved. Mutual benefit isn’t enough. If it was, we wouldn’t need a free-trade deal at all. Every country would have unilaterally abandoned all barriers to trade long ago. Back in the real world, trade deals are stubbornly difficult and time-consuming to negotiate. To add to the difficulty, May badly needs to sign a deal with someone — Trump, perhaps, or China’s president Xi Jinping. But neither Trump nor Xi badly need to sign a deal with her. This is not a great starting point.

It’s quite possible that a sensible deal will be reached. But not certain. Sometimes, in international relations, events take on their own unwelcome momentum. Consider the dark comedy Dr Strangelove (1964) in which — spoiler alert — civilisation is destroyed by a series of highly amusing miscalculations. One of the script advisers for the movie? An economist called Thomas Schelling.

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.

Free email updates

(You can unsubscribe at any time)

Undercover Economist

Why economists should be more like plumbers

What kind of economist should I be when I grow up? The opening weeks of the year have brought an embarrassment of answers.

Andrew Haldane, chief economist of the Bank of England, won headlines for comparing economists to weather forecasters. Alas, it was not a flattering comparison: Haldane mentioned Michael Fish’s infamous October 1987 forecast on primetime British TV, which offhandedly reassured viewers that there wouldn’t be a hurricane so “don’t worry”. The warning was followed by a severe storm that killed 18 people in the UK and four in France.

But if economists are like weather forecasters, the lesson is that they should keep trying. Meteorologists have a difficult job yet they do it well — partly with the help of half-a-million weather measurements a day and powerful supercomputer simulations. Perhaps economic forecasting should emulate that approach. For now, many serious economists think that economic forecasting is for fools and charlatans, and that real economists have a different job entirely.

What, then, is that job? Beatrice Cherrier, a historian of economic thought, points out that economists have long looked for an appealing metaphor. In the 19th century, economics was part science, part moral philosophy and part art. Later, economists liked to compare themselves to physicists, borrowing the jargon, the methodology and the mathematics of physics. With the discipline inspiring awe after the splitting of the atom, it must have been tempting for economists to seek the same quality of insight — not to mention the prestige and the funding.

Whether economics has really been strengthened by ideas from physics remains a matter of controversy. Some critics say that economists should embrace ideas from psychology. Others simply argue that economists have copied the wrong kind of physics and, if they used more up-to-date technical tools, they’d achieve better results.

An alternative view is that economics should be a practical, problem-solving discipline. The most famous proposal along these lines is a throwaway remark from John Maynard Keynes, who looked forward to the day when economists would be “humble, competent people on a level with dentists”.

Humility and competence sound good to me — and dentistry seems an appealing model in other ways. Dentists don’t forecast how much tooth decay you might suffer over the next decade; they tell you to floss and to lay off the fizzy drinks. Dentists know that their job is not forecasting but preventing or solving problems.

But Tony Greenham, a programme director at the RSA, recently declared that Keynes was quite wrong. Dentistry is built on objective science, says Greenham, but economics is not: economic analysis should involve clashing schools of thought, debating ideas in front of a public who must then make their choices at the ballot box. Greenham has a point, of course. Economics will never be a hard science, so there must always be room for debate. And most economic policy decisions produce winners and losers, each with a right to be heard.

Still, if dentistry offers a practical, evidence-based approach to solving problems, I’m not sure that Greenham is wise to warn economists away from that goal unless there really is no hope. Several leading economists have argued that economics should have a more practical bent. Al Roth, Nobel laureate in economics, says that economists should be like engineers. Roth has designed systems for matching students to schools and kidney donors to recipients, and his argument is that when designing such a system it’s not enough to get the broad outlines right — as a physicist or an economic theorist might — but the details too.

Meanwhile Esther Duflo — too young for a Nobel but hugely celebrated in the profession — recently gave the prestigious Ely Lecture in Chicago. She argued that economists should act like plumbers, or at least that, “some of us should do some of it some of the time.”

For Duflo, plumbing is even more practical than engineering: not only must the plumber install the system, she must observe and tinker with it as leaks and blockages become apparent. Issues that weigh heavily in theory may be trivial in practice, and vice versa.

So perhaps I should be a meteorologist, or dentist, or engineer, or plumber — or, as others might advise, psychologist, epidemiologist, historian, anthropologist or data scientist? Of course, the wonderful and frustrating thing about economics is that each of these approaches — and others — has something to offer as we try to comprehend the dizzying interactions of the economy all around us. No wonder economics is so much fun — and so hard to do well.

As I pondered all this career advice, I couldn’t help but think of Bill Phillips. Phillips was born in 1914 to a New Zealand farming family. He learnt engineering via correspondence course, and was a gold miner, crocodile hunter and war hero. He studied sociology but became an economics professor at the London School of Economics. He produced perhaps the most-cited macroeconomic paper ever written, describing the “Phillips curve”. He learnt several languages and, later in life, was fascinated both by complex dynamic systems and by the economy of China. He also built the first computer model of the British economy. It was a hydraulic computer — a system of equations, crafted in plumbing.

Now that’s an economist.

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.

Free email updates

(You can unsubscribe at any time)

Previous Next


  • 1 Twitter
  • 2 Flickr
  • 3 RSS
  • 4 YouTube
  • 5 Podcasts
  • 6 Facebook


  • Messy
  • The Undercover Economist Strikes Back
  • Adapt
  • Dear Undercover Economist
  • The Logic of Life
  • The Undercover Economist

About Tim

Tim Harford is an author, columnist for the Financial Times and presenter of Radio 4's "More or Less".
Learn More ›

Tim’s Tweets

Free Email Updates

Enter your email address to receive notifications of new articles by email (you can unsubscribe at any time).

Join 4,078 other subscribers

Do NOT follow this link or you will be banned from the site!