Tim Harford The Undercover Economist
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Other Writing

What are the best books about the history of technology?

I’ve had such fun working on the book and radio series, Fifty Things That Made the Modern Economy – and along the way I’ve had the opportunity to read some great books about the history of economics, finance, innovation and technology. Here are some of my favourites.

Alison Wolf The XX Factor (UK) (US) – Fun yet rigorous exploration of women’s participation in the workforce, and how and why it’s been changing over the years.

David Edgerton The Shock of the Old (UK) (US) – An appreciation of the humbler innovations in life, and a reminder that old technologies often stay with us a long time.

Felix Martin Money: An Unauthorised Biography (UK) (US) – Well-argued alternative history of money, packed with great stories.

Frank Trentmann Empire of Things (UK) (US) – An epic history of retail and consumerism.

Marc Levinson The Box (UK) (US) – The nerd-history to end all nerd-history. Levinson loves shipping containers and after reading this book, you will too.

Mark Kurlansky Paper (UK) (US) – I loved this book. Paper is even more underrated than shipping containers.

Mark Miodownik Stuff Matters (UK) (US) – Also good on paper – and concrete, and all sorts of miraculous materials we take for granted.

Robert Gordon The Rise and Fall of American Growth (UK) (US) – Magisterial history of technology and productivity. Closely-argued with lots of data but still feels rich and alive.

Steven Johnson How We Got To Now (UK) (US) – Stylishly-told history of six key innovations. You can’t fail to enjoy technological history the way Johnson tells it.

Steven Levy Hackers (UK) (US) – A modern classic, essential reading on the origins of modern computing.

William Goetzmann Money Changes Everything (UK) (US) – Like Gordon’s book, this is another academic read whose rich storytelling transcend the rigorous foundation. Great book.

Not the only sources for Fifty Things That Made the Modern Economy – but important ones. Enjoy!

 

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19th of June, 2017Other WritingComments off
Undercover Economist

The age of the Microsoft and Amazon economy

One of my first economics lessons contrasted perfect competition, which was judged to be a good thing, with monopoly, which was not. There are worse places to begin than by being shown the difference between championing the miracle of the free market and favouring the depredations of dominant businesses.

But monopoly power has often seemed like yesterday’s issue. Standard Oil was broken up in 1911; AT&T in 1984. To the extent that we economists worried about companies being too big, we were thinking about the systemic risks from banks that were too big to fail. But we are starting to notice again the risks not of corporate failure but of corporate success.

The most obvious examples are the big digital players: Google dominates search; Facebook is the Goliath of social media; Amazon rules online retail. But, as documented in a new working paper by five economists, American business is in general becoming more concentrated.

David Autor and his colleagues looked at 676 industries in the US — from cigarettes to greeting cards, musical instruments to payday lenders. They found that for the typical industry in each of six sectors — manufacturing, retail, finance, services, wholesale and utilities/transportation — the biggest companies are producing a larger share of output.

For example, in the early 1980s the largest four players in any given US manufacturing industry averaged 38 per cent of sales; three decades later the figure was 43 per cent. In utilities and transportation the typical market share of the biggest four companies rose from 29 per cent to 37 per cent. In retail, overshadowed by Walmart and Amazon, the rise was dramatic: 14 per cent to 30 per cent.

This is surprising. As the world economy grows, one might expect markets to become more like the perfectly competitive textbook model, not less. Deregulation should allow more competition; globalisation should expose established players to pressure from overseas; transparent prices should make it harder for fat cats to maintain their position. Why hasn’t competition chipped away at the market position of the leading companies? The simplest explanation: they are very good at what they do. Competition isn’t a threat to them. It’s an opportunity.

What Professor Autor and his colleagues call “superstar firms” tend to be more efficient. They sell more at a lower cost, so they enjoy a larger profit margin. Google is the purest example: its search algorithm won market share on merit. Alternatives are easily available, but most people do not use them. But the pattern holds more broadly: superstar firms have grown not by avoiding competitors but by defeating them.

This is not entirely bad news. But it’s not entirely good news, either. The superstar firm phenomenon is the best explanation we have of a little-noticed but worrisome trend: since 1980, in the US and many other advanced economies, workers have been getting a steadily smaller slice of the economic pie (the distribution of this labour income also became much more unequal during the 1980s and 1990s).

Workers, from shelf-stackers to chief executives, have seen their total share of economic value-added fall from about 66 per cent to about 60 per cent in the US since 1980. This decline in “labour share” is often blamed on international trade making life harder for workers and easier for footloose capital. Prof Autor and his colleagues find little evidence for this idea.

Superstar firms, instead, seem to be the cause. The story is simple. These businesses are highly productive and achieve more with less. Because of this profitability, more of the value added by the company flows to shareholders and less to workers. And what happens in these groups will tend to be reflected in the economy as a whole, because superstar firms have an increasingly important role.

All this poses a headache for policymakers — assuming policymakers can pay attention to the issue for a long enough. The policy response required is subtle: after all, the growth of innovative, productive companies is welcome. It’s the unintended consequences of that growth that pose problems.

Those consequences are not easy to predict, but here are two possibilities. Either the US economy ends up like Amazon, or it ends up like Microsoft. The Amazon future is one of relentless competition, a paradise for consumers but a nightmare for workers, and with the ever-present risk that dominant businesses will snuff out competition as the mood takes them.

The Microsoft future epitomises the economist John Hicks’s quip: “the best of all monopoly profits is a quiet life”. Microsoft in the 1990s became famous as a once-brilliant company that decided to pull up the drawbridge, locking in consumers and locking out competitors.

In either scenario ordinary people lose out, unless they can enjoy returns from capital as well as returns from working. In the very long run a superstar economy could become a technological utopia, where nobody needs to work for a living. That would require quite a realignment in our economic system; I wouldn’t bet on such an outcome happening by chance.

 
Written for and first published in the Financial Times on 19 May 2017.

My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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I’m giving some talks. Come along!

50things-hb-uk-205x300A few upcoming talks, mostly about my new bookFifty Things That Made the Modern Economy. (UK) (US). Do come along if you can!

Interviewing Owain Service at Waterstones Piccadilly on 20 June 2017, 7pm. (Owain’s book, “Think Small“, is great.)

The UK launch of  Fifty Things That Made The Modern Economy at HowTo Academy, Conway Hall, 5 July 2017, 7pm.

Talking about Messy at OffGrid, Osea Island, 10 July 2017.

In conversation with the very smart Rohan Silva at Second Home, 19 July 2017, 7pm.

Talking about Messy and Fifty Things at the Edinburgh International Book Festival7.15pm 22nd August.

Talking about “What We Get Wrong About Technology” (inspired by Fifty Things) at the FT Weekend Festival, Kenwood House, London 2 September 2017.

Opining on “Fifty Things That Made the Modern Economy” at the Cheltenham Literature Festival at 5.30pm, Friday 6 October 2017. (details tbc)

The US editionFifty Inventions That Shaped the Modern Economy, will be out in late August. I’ll keep you posted!

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12th of June, 2017MarginaliaSpeechesComments off
Undercover Economist

Where the truth really lies with statistics

As any magician can tell you, the real trick often takes place offstage. The deck has already been stacked; the card placed into the shoe. No matter how closely you look, you’ll never spot the sleight of hand.

So it is with statistics. We often pay attention to the wrong thing, scrutinising the numbers with a forensic eye without asking about what those numbers really describe. Sometimes there is no intent to deceive; there doesn’t need to be. We deceive ourselves.

A simple example: the recent official figures showing the number of homicides recorded by police in England and Wales jumped by more than 100 deaths, or 21 per cent. What could explain this? The Labour party called it “worrying”, which it is, and promised to hire more police officers.

Crime data cognoscenti know that the police database has long been regarded as a poor measure of anything very much, because the policy on recording crimes has changed over the years.

But the true reason not to be alarmed by the rise in homicides in 2016 is that the deaths did not take place in 2016. Ninety-six people died as a result of the disaster at the Hillsborough football stadium in April 1989. After years of campaigning these deaths were recorded as “unlawful killing” 27 years later. Deaths in 1989 became homicides in 2016. Sometimes the statistics are not counting what we assume they are counting.

Unexpected definitions can affect targets as well as trends. In the UK, the most notorious target is the one that keeps being missed: a promise to keep net migration under 100,000. In 2010 the then prime minister David Cameron challenged voters to kick him out if he missed the target. He did, and in a way, so did they. Encouraged by six years of failure to hit the target as home secretary, Theresa May has, now as prime minister, renewed the promise again.

How is this to be achieved? Leaving the EU won’t do the job alone: net immigration from outside the bloc has consistently exceeded 100,000. So attention has turned to a policy that many people regard as obvious: keep low-skilled immigrants out, and prioritise the highly skilled. For example, a recent policy paper published by the lobby group “Leave Means Leave” calls for a “moratorium on unskilled visas”. The paper proposes that working visas should be issued only to those who meet certain requirements, including a job offer on a salary of at least £35,000.

But this is an interesting slippage in the use of the word “unskilled”. About three quarters of UK employees earn less than £35,000, and as Jonathan Portes of King’s College London points out, the majority of nurses, primary schoolteachers, technicians, paralegals and chemists earn less than this figure.

Proposing an end to “unskilled migration” sounds reasonable to many voters; they might find it less reasonable if they realised that some definitions of “unskilled” would exclude a teacher or an intensive care nurse.

The word “cut” can also mean something different when it emerges from the mouth — or the Twitter account — of a politician. A few days ago the Labour leader, Jeremy Corbyn, tweeted: “Labour will stop the Conservatives’ £22 billion cuts to our #NHS immediately.”

No argument about the figure of £22bn: it is based on an estimate from NHS England two years ago. The problem is the word “cut”. The budget of the NHS in England is not being cut. It is increasing by £8bn after inflation.

The difficulty is that NHS England estimated that it needed not £8bn but £30bn. One might use many words to describe the £22bn shortfall — for example, “shortfall” — but “cut” is not one of them.

Amid all these surprising, confusing or deliberately vague labels, it was refreshing to see John McDonnell, the shadow chancellor, in action early in the election campaign. He promised that Labour would ensure that “the rich pay their way more”.

Normally, such statements mean very little. George Osborne, the former chancellor, was fond of saying that “those with the broadest shoulders” should bear the greatest burden, which sounds good but could mean almost anything. One definition of “rich” would be “earning more than £35,000” — most people don’t, as we’ve seen. Another might be “assets over £2.9m”, which according to the Institute for Fiscal Studies would put a British household in the top 1 per cent. Usually when politicians say “tax the rich” they hope that voters will hear “tax someone else”.

To Mr McDonnell’s credit, he actually produced a definition of “the rich”: people making more than £70,000 to £80,000 a year. That is admirably clear. Whether or not you agree with his definition or with his policy, at least we can understand it. This is rare.

Statisticians are sometimes dismissed as bean-counters. The sneering term is misleading and unfair. Most of the concepts that matter in policy are not like beans: they are not merely difficult to count, but difficult to define. If we don’t understand the definition there is little point in looking at the numbers. We have fooled ourselves before we have begun.

 
Written for and first published in the Financial Times on 12th May 2017.

My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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Undercover Monday 3

Books of the week

I read Elie Wiesel’s Night – his account of surviving Auschwitz. It’s a simple and powerful book, almost unbearable. I picked it up in a Bodleian Library reading room and for an hour or so, while I read, I was completely unaware of everything going on around me. Brilliant and horrifying. Everybody should read it. (UK) (US)

One thing that will stay with me was the desperation of Moishe, who knows what’s coming – but the Jews of Hungary simply cannot bring themselves to believe him. Wishful thinking triumphs. And the chilling words of a fellow prisoner to Wiesel: “I have more faith in Hitler than in anyone else. He alone has kept his promises, all his promises, to the Jewish people.”

 

Totally different in tone is an academic treatment of another serious topic, Alan Krueger’s What Makes A Terrorist? (UK) (US). It’s a useful antidote to the hysteria. Of course, I understand why people are terrorised by terrorists; that’s the whole point. I think we might expect more from our politicians, though. Here’s Krueger’s own take on his own book.

 

As an escape from all that, I’ve been reading Lloyd Alexander’s magnificent fantasy series The Chronicles of Prydain – available as five separate short novels or in a collected volume. (UK) (US). I can’t recommend them highly enough – simple enough for children to enjoy, but pacy, direct, full of imaginative twists. And the themes resonate into adulthood – for example, how does a child become an adult? Should we try to shield people from their own mistakes, or do they need to learn painful or even tragic lessons? I’ll be discussing the books soon on the Fictoplasm podcast.

 

On My Pile

Erik Barker: Barking up the wrong tree (UK) (US) – a guide to the latest and greatest in applied behavioural science.

Steve Mould: How To Be a Scientist (UK) (US) – fun science projects for children, but this one is a cut above the normal offering.

Tom Butler-Bowden: 50 Economics Classics (UK) (US) – TBB takes a broad view both of “economics” and “classic” here; for instance Naomi Klein is in here. But breadth is what you want from such a collection, I think.

Andrew Lo: Adaptive Markets (UK) (US) – Lo is a legend, looking forward to this, and to comparing it with the latest from another brilliantly original thinker…

Richard Bookstaber: The End Of Theory (UK) (US).

 

Recommended listening

Macro Musings interviews Paul Krugman.

Alphachat discusses the amazing Albert O Hirschman.

99 per cent Invisible does a live stage show about the Alaska Earthquake. It’s magnificent work.

And Soul Music is back. Best thing on BBC Radio.
My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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5th of June, 2017MarginaliaComments off
Undercover Economist

Personal finance sets traps for dinosaurs

It was free!” announces Bob the Dinosaur, an adorable moron from the Dilbert cartoon. Bob is driving a bright red convertible. “They just make you sign papers!”, he elaborates. That cartoon is a quarter of a century old, but some things never change. The suspicion lingers that too many people are buying cars using financial products they do not fully understand.

In the UK, the finger of suspicion is pointing at personal contract purchase agreements, or PCPs, which account for 80 per cent of new cars sold. The Prudential Regulation Authority and the Financial Conduct Authority are looking into the car finance sector (the FCA is supposed to prevent us being ripped off; the PRA is supposed to prevent banks accidentally ripping themselves off — thankless tasks).

It is difficult to explain quite how PCPs work, but easy to see the problem. Graham Hill, of the National Association of Commercial Finance Brokers, told the FT recently that using a PCP, drivers could pay less for a new BMW or Mercedes than for a second-hand Ford Focus. Or, as Bob the Dinosaur might put it, “they just make you sign papers!”

This miraculous effect is achieved by endlessly rolling over one quasi hire-purchase into another one, never quite buying a car. They are flattered by a buoyant used car market that is likely to sag before long. Yet manufacturers like them because they encourage people to buy new cars more often; car dealers like them because they generate more commission; and customers like them because the monthly payments are low. If you’re not worried yet, I have a car to sell you.

Some PCPs may be good value. The problem is that it is hard to tell. The closest analogy to a PCP — and it is not particularly close — is buying and selling a series of homes using interest-only mortgages. PCPs are a hybrid of several different financial products, part lease, part hire-purchase, and part option to choose between the two. Variables include contract length, the guaranteed value of the returned car, the deposit, purchase price of the car itself, maintenance contract tie-ins, mileage allowances, and (of course) the interest rate.

There is no reason to think customers can navigate these complexities. Suzanne Shu, an economist at UCLA, has shown that picking the cheapest mortgage deals is a problem that will fox even MBA students. PCPs are harder. We’ve seen this story play out before. There seems to be something about consumer finance that turns us all into Bob the Dinosaur.

George Akerlof and Robert Shiller, Nobel laureate economists and co-authors of Phishing for Phools (UK) (US), argue that the fallibility of consumers creates a profit opportunity. Consumer finance features heavily in their book, alongside junk food, cigarettes and slot machines — unflattering company. Given that a loan or insurance could be a life-saving product, why do financial services so often disappoint?

One reason is that finance shifts purchasing power over time and across different risky outcomes. We exhibit well-known biases when evaluating these different prospects, paying exorbitant prices to postpone a cost or eliminate a small risk. Payday loans, credit cards and extended warranties are real-world examples of that fallibility.

Second, financial contracts can create complexity out of simplicity. Even if we were thinking coolly about what was on offer, we might not be able to understand the small print — Suzanne Shu’s students couldn’t.

Third, many financial contracts are bundled up with other purchases — the PCP, plus mobile phone contracts and overpriced insurance for short-term car hire. Payment protection insurance is the infamous rip-off endgame.

Costly add-ons are not always a disaster. Everyone knows that popcorn is expensive at the cinema, and no regulatory intervention is needed. But all too often we’re seeing the primary product serving as bait for a consumer finance trap.

The best defence of laissez-faire in such cases is not that the market works well, but that regulators would make it worse. Is that true? Do regulators have a sensible response to the toxic tangle of slick salesmanship, financial wizardry, and consumer incompetence?

We could ban complex contracts: tempting, but heavy-handed. Most financial contracts have a rationale and a value to some customers. Richard Thaler and Cass Sunstein, authors of Nudge (UK) (US), have proposed an alternative system they call RECAP — for “Record, Evaluate, Compare Alternative Prices”. A RECAP rule would require finance companies to provide the entire pricing schedule in a computer-readable format, which would allow customers to go to third-party websites and compare different deals in a sophisticated way.

What auto finance needs — what most consumer finance needs — is for key information to be made simple and salient. Competition cannot work if consumers struggle to understand what they’re being sold and what it will cost. The car market’s heady mix of prestige products and bewildering finance will resist efforts at reform. Yet we must try. Bob the Dinosaur needs help.

Written for and first published in the Financial Times on 5th May.

My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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Other Writing

Economics lessons from Dr Seuss

Language matters. Any poet can attest to that, as can any lawyer. (One recent court case in the US turned on an ambiguity created by a missing comma.) But it’s less clear that we economists have realised how important it is to write clearly.
One who has is Paul Romer, the Chief Economist of the World Bank. Mr Romer has provoked a staff rebellion by instructing his large team of research economists to sharpen up their language. He’s threatened to block publication of a flagship report if more than 2.6 per cent of the words in it are “and”. Such medicine seems to be too strong for the World Bank: Mr Romer keeps his job title but is to be stripped of his managerial responsibilities.
No doubt the amusing surface of this story hides tedious depths of office politics. But Mr Romer has a point: economists seem to be drawn to obfuscatory polysyllables like wasps to jam. This is true even when compared to other academics, and even in a medium that encourages brevity: Twitter.
Recently economist Marina Della Giusta and colleagues at the University of Reading conducted an as-yet-unpublished linguistic analysis of the tweets of the top 25 academic economists and the top 25 scientists on Twitter. (The top 3 economists: Paul Krugman, Joseph Stiglitz, and Erik Brynjolfsson; the top 3 scientists: Neil DeGrasse Tyson, Brian Cox, and Richard Dawkins.)
Della Giusta and her colleagues found that economists tweeted less, were less likely to mention other twitter users, and mentioned fewer people when they did. This implies that the economists were less likely than the scientists to have Twitter conversations, especially with people they didn’t know. I can’t say I blame them; I avoid using Twitter as a medium for conversation myself. Still, the scientists managed it and the economists did not.
The economists also used less accessible language with more complex words and more abbreviations. Both their language and their behaviour was less chatty than that of the scientists.
The Bank of England has been pondering this kind of thing, too. Last year on Bank Underground, a blog for Bank of England staff, analyst Jonathan Fullwood compared Bank of England reports to the writings of Dr Seuss.
Mr Fullwood’s analysis uses statistical measures of writing complexity: long words, long sentences and long paragraphs make for more difficult prose. The Cat In The Hat stands at one end of the scale; Bank of England reports stand at the other. Mr Fullwood suggests that this complexity is not a good thing – and his work has been praised this week by Minouche Shafik, who recently left the Bank of England to run the London School of Economics.
We economists should write simpler, clearer prose if we want anybody to pay attention to what we think. But at the World Bank, Paul Romer has another mission. He has long argued that economists need to write clearly to help them think clearly.  He also believes that trust depends on clarity. If we economists write prose that sounds complicated but does not tie us down to meaning anything in particular, we cannot be surprised if nobody trusts us.
Mr Romer is much taken by a linguistic analysis from Stanford’s Literary Lab. The analysis, published in 2015, tracks the development of “Bankspeak” in World Bank annual reports since 1948.
These reports once described specific situations (“Congo’s present transport system is geared mainly to the export trade”) and what the World Bank had done to improve them. Now they more likely to be clouds of feelgood bureaucratese, in which nothing specific ever happens. Projects “are emerging” while “players” are “partnering”. The result is somewhere on the Venn diagram between unobjectionable and incomprehensible.
When I worked at the World Bank, in the early 2000s, I first heard the phrase “Christmas Tree” used to bemoan work sagging under the pet ideas that had been loaded onto it. This explains Mr Romer’s irritation at excessive use of the word “and”. The Stanford analysis has a prime example of a Christmas tree from the 1999 annual report, which wants to “promote corporate governance and competition policies and reform and privatize state-owned enterprises and labor market/social protection reform…”
Such sentences are written by committee. It is surprisingly easy to write like this when you don’t know what you think, or cannot agree, or dare not say.
Mr Romer knows what he thinks and has never been afraid to say it. His focus on clear language can do little harm. It may even do some good, although I fear that too many “ands” are the symptom but not the cause of the trouble.
We should all aspire to write a bit more like Dr Seuss. If we write more clearly we tend to think more clearly. Since what we say is easy to understand we must make sure that it is true.
But simplicity alone will not save us.
“We’re going to build a big, beautiful wall and Mexico is going to pay for it,” has the same simple tone as Dr Seuss, although it lacks his compassion. Does it reflect clear, trustworthy thinking? I do not think so, Sam-I-Am.

My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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31st of May, 2017Other WritingComments off
Undercover Economist

Should we introduce obligatory holidays?

The UK election has thrown up an intriguing idea. In a modern twist on the old offer of bread and circuses, Jeremy Corbyn’s Labour party has proposed four new public holidays — nearly a full working week’s worth. Since England and Wales currently have only eight such holidays, it would be a dramatic expansion in mandatory fun.

I like a holiday as much as the person in the next deckchair, but such days off are not costless. As any freelancer can attest, if you work less you earn less. Having a steady job with a monthly salary will hide that cost, but it’s going to pop up somewhere. Perhaps workers will receive lower pay rises. Or perhaps jobs will be lost. (Robots demand no holidays.)

But maybe these holidays would pay for themselves. A popular conceit is that many of us work inefficiently long hours, and that more vacations or shorter shifts would actually raise productivity. We can call this the “work smarter, not harder” theory of labour.

Exhibit A: The French. We British scoff at the French work ethic of four-day weekends and four-hour lunches, but the joke is on us, since the French get more done in less time. Nor are the French unique in this respect. Broadly speaking, countries with a culture of long hours are also countries with a record of low productivity per hour. According to the OECD, the Paris-based club of mostly rich nations, the longest hours in Europe are worked in Greece, closely followed by Poland, Latvia and Portugal. At the other end of the spectrum are the Danes, Dutch, Norwegians and French. Laziest of all? The Germans.

The most likely explanation for this pattern is that people in richer nations can afford the luxury of working fewer hours per year. But it’s tempting to speculate that causation runs the other way, and that short shifts and long breaks are a route to high productivity. No wonder that from time to time some think-tank or pundit proposes a six-hour working day — or a pilot scheme goes well and gets some buzz. On the face of it, it is not absurd to suggest that the British could enhance their lacklustre productivity by taking a few extra days off.

But there is an obvious objection to the idea. If a four-day week is just as productive as a five-day week, or a six-hour day beats an eight-hour day, then why don’t more employers embrace shorter hours? If it was such a good idea there would be no need for the government to impose it on anyone. It’s not impossible that the Labour party knows more than British managers about how best to run British businesses, but nor is it likely.

There is an alternative argument for the government to introduce more holidays: the hockey helmet problem. Nobel laureate economist Thomas Schelling pointed out in his 1978 book Micromotives and Macrobehavior (US) (UK) that ice hockey pros wouldn’t voluntarily wear helmets, despite the risk of horrendous injuries, because the helmets reduced visibility and put them at a disadvantage. Yet many were happy when the helmets became compulsory, offering safety without a loss of competitive edge.

Perhaps public holidays are like hockey helmets — we could usefully take time off but dare not, for fear of losing ground on our rivals. In 1998, economists Sara Solnick and David Hemenway surveyed Harvard students and found they would rather have $50,000 in a society where others were poorer than $100,000 in a society where others were richer. Students felt that money was a positional good, where what mattered was not how rich you were, but whether you were richer than others.

The Solnick/Hemenway study reached different conclusions about vacation time. The positional view — that what really matters is not how long your holiday is, but that your holiday is longer than other people’s — seems absurd. But if we’re competitive about money but not competitive about holidays, no wonder we work hard. A mandatory holiday gives every rat in the rat race a chance to catch its breath.

Even if you believe this argument for obligatory holidays — I am not sure I do myself — a final question awaits any government bold enough to introduce them. Why name a particular date? Holidays are easier and cheaper to take if other people are still working. But the Labour proposal actively emphasises national unity: we’re all to take the day off at the same time. The Scots will holiday alongside the English on St George’s day while the English return the compliment with a holiday on St Andrew’s day. Well, it might work.

But perhaps we should use holidays not to unite us, but to keep us at a safe distance from each other. We could introduce a patchwork of new holidays. Remainers could go on mini-breaks to Paris every June 22, while the Brexiters would gather on the white cliffs of Dover with warm bitter and ploughman’s lunches each June 24. A similar system in the US would spare liberals and conservatives from having to talk to each other. It seems to be the way we’re all heading, anyway — and it would be much easier to get some space on the beach.

Written for and first published in the Financial Times on 28 April 2017.

My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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Books that will help you give a superb talk

Nobody ever mastered a skill by reading books – with the possible exception of reading itself. But books can help. Below are a few that I’ve found helpful over the years. But first, a few observations.

First, a good speech needs to have a purpose. All too often people view speeches the way my daughter sometimes views her school homework: “I’ve got to write an essay about the Henry VIII and the dissolution of the monasteries, and it’s got to be at least two pages long.” “I’ve got to give a talk about information security and it’s got to fill 25 minutes.”

If that’s how you look at things, you’re well on your way to a tedious speech. The starting point will be to sit down with a piece of paper (or worse, to fire up PowerPoint) and start listing all the things you can think of that might fill the void.

Instead, start with the question, “what’s the one thing I want people to learn, or feel, or do, as a result of hearing this?”. Everything else – jokes, stories, visual aids, supporting arguments – flows from that.

Second, deliberate practice helps. Each good speech you give tends to improve every future speech: set yourself the task of giving a truly sensational talk just once in your life. You’ll learn a lot. And when you’re preparing for a speech, practice in front of the mirror, or record yourself on your phone, or recruit a friend to listen. Yes, it’s painful, but even one run-through will make an enormous difference.

Third, distinguish between your speaking notes, your handouts, and your visual aids, and decide whether you need any of them. Your speaking notes are a series of bullet-point prompts; PowerPoint is a perfectly decent tool to generate these but they should be on 3×5 inch cards in your hand, not projected on the screen behind you. Your handouts provide a reminder of what you’ve said, or references, further reading, extra detail. You may not need them at all, but if you do, this is the place for the small print and the footnotes – not on the screen. The only thing that should go on the projector screen is the bona fide visual aid – a graph, image, movie or diagram that makes a genuine contribution to the purpose of your speech (remember that?). If no visual aid is appropriate, insert a blank slide or press “B” or “W” to turn the screen blank black or white.

Okay – lesson over. Here are my recommendations.

The single best book on public speaking I’ve ever read is Chris Anderson’s TED Talks (UK) (US). I reviewed it here; my only caution about the book is that it’s focused on giving the talk of your life. Anyone looking for quick tips to perk up the monthly sales meeting won’t find them here.

A great companion to Anderson’s book is Jonathan Swabisch’s Better Presentations (UK) (US). This is a workmanlike book aimed at academics, and covers all the basics – structure, visual aids, delivery. It’s smart and comprehensive and even an experienced presenter will learn a thing or too.

A more touchy-feely effort is Garr Reynolds’s Presentation Zen (UK) (US). Contains lots of good advice, wrapped up in all kinds of talk about “mind of a swordsman” and “being present”. It would annoy some people but it’s actually full of good advice.

If you want to do the McKinsey slide-deck thing with 50 data-packed slides, but do it well, I would suggest Gene Zelazny’s Say it With Charts (UK) (US). This is not the way I present, but it is appropriate for some contexts.

Finally, good advice on design in general, which will perk up any slide, comes from The Non-Designer’s Design Book by Robin Williams (UK) (US).

 
My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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22nd of May, 2017MarginaliaOther WritingComments off
Undercover Economist

Why prize-winners are heading for a fall

With hindsight, the timing was awkward. PRWeek had barely engraved Oscar Munoz’s name on the trophy before the chief executive of United Airlines and Communicator of the Year 2017 was engulfed in a spectacular public relations crisis. The airline had summoned the police to throw David Dao out of the seat he had paid for; the police broke his nose and knocked out two teeth; and Mr Munoz’s first response was to criticise Mr Dao and apologise to the other passengers. At least the PRWeek award has a glorious future as the answer to a pub quiz question.

I’m not even sure this qualifies as the award that turned out to seem the most ridiculous. The American Institute of Architects honoured the Kemper Arena in Kansas City with a national honour award, and then held its annual convention there in 1979. Alas, the roof of the arena collapsed a few hours after the architects’ convention left the site.

Tempting as it may be to mock the judges who hand out such prizes, having a more objective benchmark for achievement does not confer immunity. Just ask Claudio Ranieri, the football manager who masterminded Leicester City’s underdog triumph in the English Premier League last year. As soon as the points dried up, Mr Ranieri was sacked.

Why does life seem to deliver such strange reversals? The first explanation is simple but easy to miss: there are a lot of awards in the world. Many of the people or organisations notable enough to make news when they screw up will also be notable enough to have won a prize that will prove embarrassing.

The second explanation is more subtle: for statistical reasons, outstanding performances tend to be followed by something less impressive. This is because most performances involve some randomness. On any given day, the worst observed outcomes will be incompetents having an unlucky day and the best observed outcomes will be stars having a lucky day. Observe the same group on another day and, because luck rarely lasts, the former outliers will not be quite as bad, or as good, as at first they seemed. This phenomenon is called “regression to the mean”.

If you place a speed camera beside a stretch of road where the accident rate has been exceptionally high, the accident rate is likely to fall. But a garden gnome in the same place will also seem to save lives. That is because exceptionally high accident rates are partly the result of bad luck. While the speed camera may encourage safer driving, unlucky driving will tend to disappear whether it is treated with a camera or with a gnome.

Daniel Kahneman, psychologist and winner of the Nobel memorial prize in economics, was advising the Israeli air force when he noted a memorable example of how regression to the mean can mislead us. A flight instructor told Mr Kahneman that when the instructor praised cadets for a skilful landing, they usually did worse next time; when he bawled them out for clumsiness they tended to improve. The instructor concluded that harsh criticism worked; Mr Kahneman pointed out that a more likely explanation was sheer chance.

“Because there is regression to the mean, it is part of the human condition that we are statistically punished for rewarding others and rewarded for punishing them,” Mr Kahneman wrote. PRWeek now knows what he meant.

Regression to the mean probably explains why many award winners subsequently disappoint. And the disappointment will be spectacular if some people are taking bigger risks than others. The most impressive performance may combine skill with luck. In a financial market — or a casino — the easiest way to become an outlier is to make a big bet. Unfortunately, there is no way to be sure whether you will be an outlier on the upside or the downside. Treading a different path is a good way to look spectacularly right, or spectacularly wrong — or, given enough time, both.

While randomness can explain much, hubris may also play a role. A few years ago, the economists Ulrike Malmendier and Geoffrey Tate examined what happened to companies whose chief executives won accolades such as Forbes’s “Best Performing CEO” or BusinessWeek’s “Best Manager”. Ms Malmendier and Mr Tate picked a statistical control group of nearly-men and nearly-women who might have been expected to win an award, but did not.

Like the near-winners, the winners ran large, profitable companies. But those run by the winners did far worse in the three years following the award, lagging behind the near-winners by about 20 per cent. The prizewinning CEOs nevertheless enjoyed millions of dollars more in pay. They were also more likely to write books, accept seats on other corporate boards and improve their golf handicap.

Winning a prize may strengthen the hands of already dominant CEOs, enabling them to extract more money from shareholders and distracting them with the opportunity to write self-congratulatory books. Right now, I doubt that anyone is rushing to offer Mr Munoz an advance for his management insights.

Written for and first published in the Financial Times on 21 April 2017.

My new book is “Fifty Things That Made The Modern Economy” – coming soon! If you want to get ahead of the curve you can pre-order in the US (slightly different title) or in the UK or through your local bookshop.

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