Tim Harford The Undercover Economist

Articles published in 2013

Of Bitcoins, bubbles and B&Q vouchers

The object of anarcho-utopian fantasies is of little value if you want a pizza, writes Tim Harford

‘The tiny Channel Island of Alderney is launching an audacious bid to become the first jurisdiction to mint physical Bitcoins.’
Financial Times, November 29

Surely that’s the ultimate sell signal?

Absolutely. It’s like Grandad getting a Facebook account.

I meant to suggest that Bitcoins are in a bubble.

Who can say? One definition of a bubble is that an asset’s price becomes separated from its fundamental value, and driven only by the expectation of the ability to sell the asset to somebody else. But by that definition, gold has been in a bubble for thousands of years – so saying “Bitcoins are in a bubble” is true but not especially useful investment advice.

You think they might go even higher?

If journalists like me keep publishing columns like this, perhaps. It’s never quite clear whether the media buzz drives the price or the price drives the media buzz. There was a moment, recently, when a Bitcoin was worth more than an ounce of gold. Given that, two years ago, gold was worth about $1,800 an ounce – and three years ago Bitcoins were trading at about 20 cents – that’s quite something. Hence the sudden run of stories about millions of dollars of Bitcoins accidentally left on a hard drive dumped in a landfill in Wales; the companies offering discounts on “Bitcoin Black Friday”; and this ludicrous idea from Alderney.

You sound grumpy. You didn’t actually buy any Bitcoins, did you?

No. And if I had, of course I would be desperate to sell, and yet hesitating in case the price leapt up again. And since nobody wants to sell them, nobody wants to use them to buy pizza either – which is a bit of a blow for an idea with pretensions at being a currency.

You’ve got to concede, though, that Bitcoin has arrived on the map.

As a venue for speculation, yes. The total value of Bitcoins is about $13bn – give or take a billion or two per day, because it’s impossibly volatile. The total value of pound sterling notes and coins outstanding is about £65bn – almost 10 times as much. That’s not a huge gap, given that Bitcoin is less than five years old and is a pseudonymous hacker’s anarcho-utopian dream, while the UK is a top 10 economy and sterling is one of the world’s best established currencies. But while Bitcoin is an impressible speculative asset, as usable money, it’s a joke – a unit of account so volatile that nobody can remember what it’s worth, and so prone to sudden price spikes that nobody wants to spend the stuff.

Sounds like the perfect Christmas gift.

Funny you should say that – gift vouchers seem irrepressibly popular every Christmas, and they, too, are awful currencies.

Surely you’re not telling me there’s a speculative bubble in B&Q vouchers?

I doubt that. Most gift vouchers expire after a while, and B&Q vouchers are no exception, so the long-term value of these vouchers is definitely zero – unlike the long-term value of Bitcoins, which is only probably zero.

And regular money is bad?

Not as far as I’m concerned. But true Bitcoin believers love the fact that it has no central bank behind it to mess things up. And gift-givers tend to regard real cash as rather grubby and unimaginative, whereas – for reasons that escape me – they think of vouchers as a more honourable alternative. In both cases, although for very different reasons, plain old pounds or dollars are stigmatised. We humble economists can only scratch our heads at such sentimentality.

I think you’re being a bit harsh.

Hardly. Vouchers are subject to “breakage” rates of about 10 per cent – that’s the euphemism that companies use to describe the vouchers that expire in a desk drawer somewhere. They are also resold at a loss on eBay, which does not say much for their effectiveness as gifts. If you can’t think of a plausible present, just give cash.

Or Bitcoins.

If you must. Just be aware that you have absolutely no idea what Bitcoins will be worth by the time Christmas arrives. That means Bitcoins fail the most fundamental test of any useful currency: stability in comparison to the sort of things you might want to buy. The irony about Bitcoins is that they were initially embraced by people with a fear that traditional currencies were about to suffer hyperinflation. They haven’t. Bitcoins have suffered hyperdeflation, though. Nice for those who bought in early. But, in a real currency, that isn’t a feature: it’s a deadly bug.

Also published at ft.com.

Amazon’s drones aren’t coming soon. But what will the world look like when they do?

Let’s not ask whether, in two years’ time, Amazon will deliver your last-minute Christmas shopping by octocopter. It won’t – the idea is a glorious publicity stunt.
The current objections to filling the skies with delivery drones are tremendous. The hovering robots are unreliable and likely to bump into things, and each other; the energy costs are high; and, of course, we look forward to Amazon fending off litigants after a miniature helicopter makes a hard landing somewhere inconvenient.
But while we tend to get excited and then disappointed by short-term techno-hype, the longer-term changes are often more profound than we expect. We typically lack the imagination to understand what they might be – nothing ever looks as dated as old science fiction. Regulatory obstacles are there to be surmounted: we already drive heavy chunks of metal around, killing people every day, so it is safe to assume that we will get over any safety concerns about drones.
So let us assume that they do one day cloud our skies. That brings us to a far more interesting question: not whether cheap, safe, legal drones will fetch our shopping, but what would the world look like if they did?
Prediction one: a sharper distinction between the hoarders and the minimalists. As the economist Tyler Cowen has pointed out, fast, cheap drone delivery allows you to keep low inventories. Say goodbye to overstuffed freezers and groaning bookshelves: the Ocado-copter will deliver whatever you need for tonight’s dinner party given 30 minutes’ notice. This is an unclutterer’s dream. But while some will use on-demand delivery to keep their homes free of unnecessary junk, many people are likely to order more than they can possibly use. For most of us, cheap, immediate access to stuff is simply going to mean – well, more stuff.
Prediction two: the high street might do better than you would think. Amazon’s current business model relies on vast, efficient warehouse hubs some distance from consumers. Parcels are dispatched from Amazon’s hub, reorganised at delivery hubs by Royal Mail or other couriers, then delivered to us at home. The speed and short range of drone delivery suggests that Amazon would need many more, smaller dispatch centres much closer to consumers. Other retailers already have these: they are on the high street. It remains to be seen whether a small, internet-only warehouse operating out of a business park around the back of the railway station will actually outcompete high-street shops serving double-duty as traditional retailers and drone-dispatch hubs.
Prediction three: home delivery would be just the start. Amazon would know where you were, and with a few swipes on a smartphone app, you could tell the drone to deliver to your office or, for that matter, to bring a Coke as you pause halfway around your morning jog. When you need that delivery of emergency insulin, you may not actually be at home. Amazon will not be delivering cocaine via drones – but somebody certainly will.
Prediction four: the real benefits may come from sharing logistics, with each individual retailer or restaurateur being able to book a slot on the drone mother ship at little notice for a low fee. (Would it be an airship? Or, more prosaically, just a robot-driven lorry that cruises slowly around the neighbourhood?) Amazon – and Google, which has pioneered self-driving cars and this week announced a push into robotics – have been pioneers in “cloud computing”, where smaller players rent computer power as a service from the big boys. The swarm of currycopters may be a less metaphorical cloud – a service that anyone needing a quick delivery can rent on a whim.
Prediction five: the suburbs will benefit. Amazon’s publicity video shows a drone flying over open countryside, but the drones seem more likely to work in urban areas. Whether anyone who lives in Brooklyn or Bloomsbury will really get excited about 30-minute delivery times is an open question: you only have to walk out of the front door to have easy access to most of what you might want in a hurry. Yet those who live on the outskirts of big population centres will see the benefits of not having to get in the car and drive to a hypermarket.
Prediction six: maybe things will not really change after all. If, 15 years ago, I promised you cheap next-day delivery of almost any product you could imagine, convenient and reliable grocery delivery, and the online streaming of cheap or free video and music, you would have predicted a retailing earthquake. What is really surprising about the high street is how little it has changed. My own local high street lost a Virgin Megastore and a Borders, but the gaps have been filled by fast-fashion retailers and a Tesco Metro.
In fact, the only prediction of which I am truly confident is that whatever the really important change will be, it will take most of us by surprise.


First published in the Financial Times.

A minute is a long time in economics

High-frequency traders need high-frequency data, writes Tim Harford

‘Market-sensitive data on economic growth, inflation and employment could be “drip-fed” into the public domain because the Office for National Statistics website regularly fails to publish them at 9.30am.’
Financial Times, November 25

What’s so bad about drip-feeding?

We drip-feed delicate flowers and patients in intensive care – not economic statistics.

I thought the UK economy was no longer a delicate flower?

Recent economic data have looked pretty good – if you could get hold of them. That may have been hard. The business investment data, due to be published on Wednesday at 9.30am, were two quarters out of date for most of the morning. By itself, not such a big thing but this sort of glitch seems to happen too often. It does seem not all is well with the ONS website.

Hence its proposal to drip-feed data?

Careful: it’s not an ONS idea. It was put forward by the UK Statistics Authority, which oversees the ONS.

And why did it propose the idea?

Hard to say, especially since I couldn’t work out how to download the UKSA report at first. (Its website is a little tricky to navigate, too.) But in a nutshell, some data are sensitive: they can move markets, and a trader with early access to the latest figures would have a big advantage. The ONS is finding it hard to publish these data on time – half the sensitive releases in the first quarter of 2013 were more than a minute late.

A minute late doesn’t sound much. Have you tried to catch a train recently?

High-frequency traders are making investments to shave a millisecond or two off the time it takes to send and receive data. Usain Bolt’s reaction time in the 2012 Olympic 100 metres final was 165 milliseconds; a minute is 60,000 milliseconds. In context, a minute is a long time.

Why is it hard to publish on time?

Leaving aside the question of what “on time” even means in a world of superfast algorithmic traders, the obvious way to publish promptly is to upload the data to the servers in advance, then reveal them at 9.30am. But the servers aren’t secure enough for this, and it would apparently cost several million pounds to fix that. So the ONS begins manually uploading the most sensitive data four seconds before 9.30am and hopes it will go live at about the right time. That process is prone to delay, especially when the data sets are large and eagerly anticipated.

Hence the embarrassing idea of releasing the headlines first and the details later. But does it matter if the market-sensitive stuff goes on the site a few minutes late?

Perhaps not. Serious players probably don’t care – they get the data through proprietary trading platforms such as Bloomberg and Reuters.

And the rest of us have to wait.

Yes. Which looks bad. But prompt publication of statistics on the ONS site is more of a matter of pride than of practical significance. Most ONS watchers are complaining about other things; Mark Carney, the Bank of England governor, for example.

ONS watchers are complaining about Carney?

No, Carney is complaining about the ONS. He said this week that he wasn’t happy with the quality of its data on investment, didn’t put much weight on it and was much more comfortable with the data quality back in his native Canada.


The other complaint is the usability of the website. Big beasts of economics journalism, such as Evan Davis of the BBC, and the FT’s own Chris Giles, have complained that the site is hard to use, especially for casual users asking relatively simple questions.

Sounds like a shambles.

The ONS has my sympathy. It has a thankless task: nobody ever notices when things go right. The data sets were crafted and categorised for a pre-web age, and it is no simple matter to preserve the continuity and integrity of the data while making the site swift and simple to use. The problems with the website have been frankly acknowledged, and the ONS is trying to deal with them. But the ONS and UKSA are under severe budgetary pressure: they’re heading towards a budget of £150m a year, or £2.50 per person. Not such a lot of money to spend on figuring out the state of the nation.

And UKSA’s new idea is bound to embarrass the ONS even more.

Well, perhaps by accident, UKSA’s idea has achieved something: it’s been a loud, clear cry for help.

Also published at ft.com.

The perils of public speaking

‘Feedback is standard in certain environments … But it is rare for criticism to be quite so practical’

I recently gave a talk at a large venue to nearly 1,000 people. It seemed to go well but who am I to judge? The experience of giving a speech is radically different from the experience of listening to one. An adrenalin-drenched emotional rollercoaster for a nervous speaker may nevertheless be unbearably tedious for the listeners. A superbly honed performance may produce a sense of suspense, surprise and delight for the audience; the result of many hours of rehearsal and repetition for the speaker. Yet it can be very hard indeed for the speaker to know what worked and what didn’t.

Audience comments aren’t much help, either. People are polite, and they know that giving a speech is difficult, so a handshake and a “well done” could mean anything from “you moved me to tears” to “you bored me to tears”. A speaker can float through talk after talk in a warm bath of gently encouraging remarks.

On this particular day, though, I was in for less of a warm bath, more of a bracing shower. The Geoffrey Boycott of personal financial advisers was in the audience – a tall Yorkshireman with lots of unvarnished opinions that he felt duty-bound to share with me in the lobby afterwards.

“For a start, I kept wanting to offer you my tie. Next time, wear one. And your shoes – I notice things like that.” He gestured towards my evidently slightly-too-comfortable footwear.

“But that’s not what I wanted to tell you,” he continued. I waited, a little bemused. “Your first slide, instead of just telling us that it was John Maynard Keynes, you could have asked, ‘Does anyone know who this is? Anyone?’ It just gets your audience a bit more involved. I teach public speaking, you see.”

I nodded and thanked him for the suggestion but the flow of comments was relentless. “Don’t get me wrong, I liked it. But then, what you could have done was … ”

As a piece of rhetorical advice, it was too much “public speaking for beginners” to take entirely seriously. But the conversation was an absolute masterclass in how to give feedback: arresting, friendly, frank – and above all specific. My self-appointed speaking coach had identified a set of particular points he wanted done differently, and listed them clearly, with reasons, examples and the occasional word of encouragement.

Such feedback is standard in certain environments – Olympic coaches, editors on deadline and schoolteachers all provide focused constructive feedback if they’re any good. But it is rare for criticism to be quite so practical: it’s usually vague and verging on flattery or cruelty.

An alternative is the “praise sandwich”, a thin but chewy sliver of specific feedback, squeezed between two thick, doughy slabs of praise. This seems like a common sense way to combine criticism with kindness but it is not always helpful. The economist Richard Thaler once posited the idea that we practise “hedonic editing” – lumping together good and bad news to make ourselves feel better. (An example: why fret that I lost my wallet, when my house gained thousands of pounds in value just this month?) Hedonic editing allows us to take the rough with the smooth; but that makes it a dangerous way to process critical comments. It helps us feel better but it doesn’t help us perform better.

Yet there’s no use blaming the critics for being too vague: they’re vague because they know that specific criticism is not always welcome. I have taken to seeking out specific suggestions for improvement, when I can muster the courage.

It’s draining to ask for such comments. It is also difficult to provide them: if you ask people to think hard about something you should have done differently, they will often be lost for words. But there are certain, glorious exceptions. If they don’t buttonhole you in the lobby, they’re worth seeking out.

Also published at ft.com.

Why women prefer fixed-price cars

‘Discrimination surely remains important, as anyone can see if they pay attention to how women are often treated in business environments’

Angela Ahrendts is about to leave Burberry; Liv Garfield is soon to run Severn Trent; the privatised Royal Mail may soon join the FTSE 100 club with Moya Greene at the top. But one thing never seems to change: there are only a handful of female chief executives of FTSE 100 companies. Why?

There is, of course, more than one force at play. Discrimination surely remains important, as anyone can see if they pay attention to how women are often treated in business environments. For those wanting a higher standard of evidence, consider a famous study by economists Claudia Goldin and Cecilia Rouse. They demonstrated that when the top US orchestras, which were dominated by men, introduced blind auditions for new members, women became several times more likely to be offered jobs.

Another obstacle to women’s achievement is motherhood. Goldin, with Lawrence Katz and Marianne Bertrand, studied alumni from Chicago’s Booth School of Business. Men and childless women have almost indistinguishable earnings; once women start having children, the gap between them and men begins to widen. (Why this might be is itself a good question.)

Another possibility is that men and women act differently in some important way. The Why Axis, by economists Uri Gneezy and John List, explores this with a series of experiments. Gneezy and List are interested in the different sexes’ appetite for competition, and performance in competitive situations.

A simple experiment requires subjects to throw a ball into a bucket. They are offered two deals: a cash bonus for every ball that hits the target or a head-to-head match, with the winner getting three times the per-ball bonus but the loser getting nothing. Gneezy found that in the US, men tended to prefer competition and women avoided it. The same was true when the research was carried out in a patriarchal tribal society – the Masai of Tanzania.

Among the Khasi of northeast India, the situation was reversed: the women liked to compete and the men did not. Why the difference? The Khasi are a matrilineal society, and one where men have fewer economic rights than women. List and Gneezy conclude that while women generally avoid competitive pressure, this tendency must be at least partially the result of socialisation because it does not apply to the Khasi.

How should we respond to this analysis? Many essentially non-competitive jobs are filled through an intensely competitive recruitment process; perhaps that’s something we can change? List and Gneezy suggest exposing girls to more competitive situations but they also put in a word for single-sex education. They are aware of the apparent contradiction.

Here’s another tangle: Gneezy and List describe one experiment in which job adverts were posted with an hourly rate. When that rate was described as “negotiable”, both sexes haggled for more pay with enthusiasm. If negotiability had not been mentioned, the men haggled anyway but the women tended not to. Women were also more likely to apply to an advert, relative to men, if the wage was “negotiable”.

Gneezy and List conclude that employers should be explicit that wages are negotiable. But they also point to evidence that women prefer to buy cars that are offered at non-negotiable prices. What should we conclude? That women are attracted by negotiable wage rates but repelled by negotiable car prices? Expect no silver bullets here.

It’s clear that we haven’t cracked the glass ceiling just yet. But no matter how intractable the subject, there’s always a place for good empirical work: let’s hope that List, Gneezy, Rouse and Goldin continue to examine what that ceiling is really made of.

Also published at ft.com.

A universal income is not such a silly idea

The concept of paying people to sit around has an upside, writes Tim Harford

‘Swiss to vote on 2,500 franc basic income for every adult.” Reuters, 4 October 2013

How much is that?

It’s about £1,700 a month – over £20,000 a year.

Payable to whom?

Everybody, or at least, every adult citizen. It’s called a “basic income” and everyone gets it, no strings attached.

You have to be joking.

We’ll have to see whether the Swiss think it’s funny or not – they are holding a referendum, which is something they do quite a lot. But the idea of a basic income suddenly seems to be back on the radar after many years of being out of fashion. The New York Times announced recently that at the cocktail parties of Berlin there is talk of little else; US policy wonks are getting excited about it too.

This sounds like some communist plot. How can anyone take seriously the idea of paying people to sit around on their backsides?

The idea is endorsed not only by experts on inequality such as Oxford’s Sir Tony Atkinson, but by the late Milton Friedman, an unlikely communist. The idea of a basic income is one that unites many left- and rightwingers while commanding very little support in the mainstream.

What on earth did Friedman see in the idea?

He saw an alternative to the current welfare state. We pay money to certain people of working age, but often only on the condition that they’re not working. Then, in an attempt to overcome the obvious problem that we’re paying people not to work, we chivvy them to get a job. Our efforts are demeaning and bureaucratic without being particularly effective. A basic income goes to all, whether they work or not.

And nobody would.

Well, maybe. If the basic income was something more modest than the Swiss campaigners have in mind – say, £75 a week, roughly the level at which the UK’s Income Support is paid – then I think most people would want to supplement that. There wouldn’t be a sudden withdrawal of benefits, so seeking part- or full-time work would be straightforward. Some advocates of a basic income see the prospect of voting with your backside as an advantage of the proposal: it would encourage employers to make low-paid jobs less uncomfortable and degrading.

Your strategy appears to be “try it and hope”.

I’m not entirely convinced of the idea myself, but I do think it should be taken more seriously than it currently is in the UK. Unlike many utopian policies, this has been tried with a set of rigorous experiments in the US in the late 1960s and 1970s. It turns out that people do work less if offered a basic income – but the effect is not dramatic by any means.

This can’t be affordable.

That depends on whether people withdraw en masse from the labour force. If most people keep working, as I would expect, the idea is less expensive than it might seem. The basic income could replace all sorts of benefits, and would also presumably replace the personal allowance for income tax. In some ways the size of the state would have to rise: some tax, such as VAT, income tax, or both, would have to raise more money. In other ways the size of the state would shrink. This is what appeals to some conservatives: Friedman believed that with a reasonable basic income for all, the welfare state as we know it would wither.

What about special cases – people with severe and expensive disabilities?

Friedman argued in Free to Choose, a book published in 1980, that such cases would be few enough that private charities would deal with them. I am not sure the modern world would accept that answer. And this does point to a general concern about basic income schemes: they look efficient and neat on paper but in reality one suspects that the complexities of the modern welfare state would fail to disappear. We would probably have exemptions for immigrants, housing allowances for Londoners, and all the rest.

I still think we’d get a country full of layabouts.

That’s the risk, I suppose. There is an alternative way to look at all this: an increasing number of economists are beginning to worry that technological change may make large numbers of people completely unemployable. In short, the robots are coming to take our jobs. These concerns have been wrong before, but perhaps this time really is different. If so, we’ll need an economic system that can cope when lots of people have no way to making a living. I wonder if everyone has a basic income in Star Trek.

Also published at ft.com.

Let’s Make More Misstakes

My talk in 2012 at the Sydney Opera House’s Festival of Dangerous Ideas is now on YouTube, which makes it easier to embed. Enjoy!

27th of November, 2013SpeechesComments off

Could Scotland handle its debt?

‘The essential problem is that an independent Scotland would struggle to deal with a debt burden that the UK as a whole finds manageable’

Everybody knows that the financial crisis has put a dent in the ambitions of Scottish nationalists. Alex Salmond’s “arc of prosperity” comparisons to Iceland and Ireland turned from inspiring to embarrassing almost overnight. It also didn’t escape anyone’s notice that the two largest banking basket cases were headquartered in Edinburgh, with titles that included “of Scotland”.

Scottish nationalists may struggle to overcome the political consequences of all this. But the crisis also created a profound economic obstacle to independence: the UK government’s large and rising debt. Westminster’s economic policies may prove too much for Holyrood to handle.

The essential problem is that an independent Scotland would struggle to deal with a debt burden that the UK as a whole finds manageable. This isn’t fair – but that’s the bond markets for you.

Exactly how much UK debt Scotland would shoulder would be negotiable, but there are estimates. One, by Angus Armstrong and Monique Ebell for the National Institute of Economic and Social Research, puts Scotland’s likely debt burden at 86 per cent of GDP in 2016/17, using Maastricht treaty definitions. This assumes Scotland acquires most of the UK’s oil and gas but only 8.4 per cent of the UK government’s debt, in line with its population. (Armstrong and Ebell outline other possibilities, many less favourable to Scotland.)

Is that 86 per cent a big number? In some ways no: it’s less than the debt/GDP ratio the continuing UK would face, and the UK has so far faced no trouble finding lenders to finance its continuing deficits.

But a realist would have to look at that debt/GDP ratio as a serious problem for Scotland, and not just because it is a world away from the 60 per cent limit customarily demanded of eurozone entrants. Scotland would be an unknown quantity to international bond investors. It would be a small economy, dependent on volatile hydrocarbon revenues, with no liquid market for sovereign bonds yet established, and no track record.

The likely consequences: higher interest payments. And with a debt/GDP ratio approaching 90 per cent and (just like the rest of the UK) a substantial ongoing deficit, high interest payments would be painful. All of this would have been a non-issue before the crisis broke.

Then there’s the transition: Scotland could not simply assume UK government debt, because bondholders have lent money to the UK government, not to Scotland. Scotland would presumably need to borrow, oh, £125bn or so – either from the rest of the UK or from the bond markets – and use it to retire its chunk of UK debt. That’s a lot of money to raise all at once, and even a small premium on that transaction would cost each Scot hundreds of pounds at a stroke.

The debt problem bears directly on a more familiar debate: what currency should an independent Scotland assume – the euro, sterling, or a Scottish currency? The euro is out of the question for now. Before the crisis, the UK’s (and Scotland’s) debt/GDP ratio was well inside eurozone accession criteria. It has roughly doubled since.

Sterling would be a tricky choice too: Scotland would have to run a contractionary fiscal policy to stabilise its debt in the face of a possibly sceptical bond market. That would be tough to do if Scotland had ceded control of monetary policy to a non-Scottish central bank (just ask the Spanish).

The most likely option is an independent Scottish currency. That would give Scotland’s government room for manoeuvre by printing money, though it would also increase the likely interest rates on Scottish debt, as investors would want compensation for the risk of a currency devaluation.

Scotland’s future debt burden is not a fatal obstacle to independence. And it is not Salmond’s fault. But it has become his problem.

Also published at ft.com.

Betting against London is tempting but no sure thing

There is far more to the British capital than hot money and hot air, writes Tim Harford

Shanghai’s Pudong district soared out of a swamp in a few short years; Dubai bloomed in a desert. London is too venerable for such sudden efflorescence, but the City is trying its best to sprout skyscrapers. The infrequent visitor cannot fail to be struck by the line of new buildings striding north from the Shard at London Bridge: the Walkie-Talkie, the Cheese-Grater, the Heron Tower, Broadgate Tower. The City’s first skyscraper, then the National Westminster Tower, was completed in 1980; it took a generation to add a second, the Gherkin. Now both are lost amid a fairground of new stunt architecture. There is more to come.

Meanwhile, the only thing Londoners themselves can discuss is the rapidly inflating price of the houses they have bought – or cannot afford to buy. The joke used to be that the typical London house was earning more than the typical London household. Today it is no longer a comic exaggeration.

To add to the air of insanity, there is talk of “lights-out London”. Rich foreigners are snapping up prime property for tens of millions of pounds, digging out multistorey basements that would shame Tolkien’s Mines of Moria, and then leaving them empty while they sail around in gigantic yachts.

It is all rather unnerving. So when Cory Doctorow, an author and blogger, recently posted the question, “How would you short London?” he seemed to be raising something vital. Shorting London property is not too hard – betting against the shares of Capital and Counties or Great Portland Estates should do the trick. (I have not yet figured out how to bet against luxury hair removal salons or overpriced steak houses.) But the deeper point is not how to short London but whether it has set such a hubristic course that nemesis is inevitable. There seems to be something feverish and surreal about London these days. The contrarian in me whispers that it will all end in tears. Will it?

It is worth teasing apart different parts of the madness. The idea of lights-out London can be dispelled by five minutes walking down Oxford Street, or a single attempt to make a tube journey between the hours of 8am and 9am. London is heaving: the shops are full, the pavements are spilling over, the streets are clogged with traffic and the public transport system is crammed. Some foreigners are buying second homes in central London but the numbers seem to be very low. Soho is in little danger of becoming a ghost town.

The skyscrapers are a separate facet of the London craze. One can quibble with the selfish, attention-grabbing architecture. Even if the Walkie-Talkie with its heat-focusing curved sides has stopped destroying nearby property, it is a bully of a building that will do London no favours.

Yet the scale of the building effort itself is less insane than it might seem. London is making up for lost time. New Yorkers would chuckle at the idea that the Heron Tower alone was plenty big enough for one decade’s worth of growth. The housing bubble looks more serious. One measure of that is the gross rental yield, which – reckons property search engine Home.co.uk – is below 3 per cent in the prime west London postcodes, and below 5 per cent in much of the rest of the capital. Those yields look like a recipe for trouble when interest rates rise – which they will.

But what do I know? I have been convinced that London’s housing is overvalued for at least a decade. The longer the boom continues, the more I doubt myself – even if the evidence of unsustainability just gets stronger.

Robert Shiller, one of this year’s Nobel memorial prizewinning economists, has long been my guide to bubble spotting. Perhaps in the hope of teasing fellow economists he has taken to treating a bubble as a condition best diagnosed with a psychiatrist’s checklist: “Sharp increases in the price of an asset like real estate or dotcom shares; great public excitement about said increases; an accompanying media frenzy …” Tick, tick, tick.

The most interesting question is the hardest to answer: is London’s innovative and cultural dynamo in danger of slowing down? Perhaps rich Russians and Saudis will live in Chelsea, their needs taken care of by armies of Poles commuting in from Bromley and Walthamstow, while French and American bankers will sleep four-hour nights in luxury flats in Canary Wharf and work flat-out the rest of the time. The entire mega-city, in this scenario, would contribute to the UK only in the way that an oilfield in the Thames Estuary would. The capital would be a plug-and-play, could-be-anywhere financial hub grafted on to a London experience theme park for visiting billionaires.

Perhaps. I am struck by how heavily this dystopian vision leans on the idea that foreigners are to blame – an idea that always seems to engender panic and shut down the critical faculties. “It’s foreign investment, buy-to-lets,” one estate agent recently told a worried Guardian columnist. But that does not mean Brits cannot live in London. They can – but often as tenants of a foreign landlord who may well have overpaid.

It is possible for a neighbourhood to become a victim of its own success. Low rents attract artists, new businesses, experimenters and risk-takers. The neighbourhood becomes cool; rents rise. Eventually only middle-aged, middle-class squares live there. (Or – gasp! – rich foreigners.) But it is hard to see this applying across an entire city. Some fret that Manhattan is becoming a bore. It still seems passably diverting to this tourist, and even if Manhattan is tedious, Brooklyn is picking up the slack. As in New York, so in London: if Shoreditch becomes too pricey for bearded hipsters making artisanal pickles, there’s always Bow or Clapton Pond.

London is too economically diverse and too socially cosmopolitan to turn into a high-rent economic desert. As Europe’s only English-speaking world city – apologies to Amsterdam, Birmingham, Dublin, Manchester and Glasgow – it is a magnet for English-learners and English-speakers from across the EU. It is a centre not only for finance and tourism but education, media, technology, food, design and the arts. It is a hub for the British and a gateway to Europe for the rest of the world. The housing bubble looks likely to burst. But there is more to London than hot money and hot air.

Also published at ft.com.

How did space become junk’s final frontier?

‘Space hasn’t been made impassable by debris just yet. There’s quite a lot of room, after all’

I don’t think I’m spoiling too many surprises when I reveal that the plot of the film Gravity, a low-orbit spectacular starring Sandra Bullock and George Clooney, involves spacecraft getting hit by space debris. It’s a less fanciful premise than it might seem: in 2009, two unmanned satellites hit each other without warning, nearly 800km above Siberia.

That collision heralded a serious problem, first flagged in 1978 by Donald Kessler, then an astrophysicist at Nasa. The concern isn’t that space debris will rain down on us here on Earth: it’s that it will stay up there in space.

The two satellites that collided, Cosmos-2251 and Iridium-33, weighed almost a ton and a half altogether. The result was at least a thousand fist-sized chunks of metal, any one of which could destroy a further satellite, and produce hundreds of further chunks. It takes time for these chunks to fall out of orbit.

What worried Kessler – and still does – was the prospect of a chain reaction. Too much debris in orbit would make it impossible to launch the satellites that have become an indispensable part of life back on Earth.

Nasa is tracking 21,000 pieces of junk 10cm across or bigger – like small cannonballs. In low Earth orbits, they are travelling at about 7km a second (25,200km/h). But space hasn’t been made impassable by debris just yet. There’s quite a lot of room up there, after all. Low Earth orbits are common but include a variety of altitudes, so objects have plenty of ways to fail to hit each other. Geosynchronous orbits, popular with communications satellites, must be exactly 42,164km from the centre of the Earth. But satellites that far out share more than 22bn sq km of space.

Still, some orbits are more crowded than others; more collisions are surely just a matter of time. That was the opinion of a 2011 report from the National Academy of Sciences, “Limiting Future Collision Risk to Spacecraft”, which argued that there is already enough junk crashing into other junk that the problem will worsen even if there are no further launches.

Deliberately moving the debris somewhere safer seems possible, but pricey. It’s expensive to tidy up a satellite – or to design one that tidies itself up – and while the benefits of doing so are widely shared, the costs are not. So the clean-up doesn’t happen.

The regulation of satellites is no simple matter: Cosmos-2251 was launched by the Russian military; Iridium-33 by a US corporation. The single largest space-junk incident was in 2007, when the Chinese military blew up a satellite just to show that it could. The regulatory authority capable of dictating to all three of those parties does not exist. (The United Nations did issue voluntary guidelines in 2010.)

Economists such as Molly Macauley of Resources for the Future, a think-tank, have been pondering this problem for some time. The obvious economic solution, recently revived by three researchers, Nodir Adilov, Peter Alexander and Brendan Cunningham, is a tax on new satellite launches. Macauley has proposed linking the level of this tax to the design of the satellite – safer designs would attract a lower charge. Another possibility is that satellite operators would put down a deposit, to be refunded once the obsolete satellite had been pushed into a safer orbit.

This is one of those all-too-common situations when it is easier for economists to announce the optimal policy than it is for politicians to implement it. As with climate change, there’s a burden to be shared here, a threat of uncertain magnitude, and plenty of opportunity for free riding.

Yet this is a far cheaper problem than climate change, with a smaller number of decision makers. It should be easier to reach an agreement on space junk than on greenhouse gases. Alas, that is a not a very encouraging comparison.

Also published at ft.com.

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