Tim Harford The Undercover Economist

Articles published in 2019

What’s it like to have lunch with a Nobel laureate?

My recent “lunch with the FT” with Richard Thaler (Nobel laureate, author of Nudge and Misbehaving) was a lot of fun. I don’t do these formal sit-down interviews often but over the years I’ve racked up a few.

At the end of the lunch I mentioned to Thaler the other economists I’d lunched with. “Good company”, he said. I think he’s right. So, just in case you missed the other interviews:

Thomas Schelling (1921 – 2016, Nobel Laureate 2005). I interviewed Schelling in his home shortly after he won the Nobel. I was still barely a journalist at all; he was charming and gracious. I find Schelling and his ideas endlessly fascinating. If you’d like to read a Schelling book, perhaps start with Micromotives and Macrobehaviour.

Gary Becker (1930 – 2014, Nobel Laureate 1992). Becker, charmingly, committed a “rational crime” during the interview.  Becker’s ideas were a big influence on my writing The Logic of Life.

My very first “Lunch with the FT” was with Steven Levitt, just before Freakonomics came out. It feels like a long time ago…

And if you want more, here’s my lunch with blogger, activist and novelist Cory Doctorow; here’s the time Michael Lewis played me at an obscure German boardgame.

 

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Should we take a few long holidays, or lots of short ones?

I know a man who used to deal with a stressful job, working 15-18 hour days in a senior role, by slipping away to a rented house near Richmond Park in London.

There, he refused to be interrupted by messages except during office hours, spent time playing bridge well and golf badly, and he ensured that the location of the hideaway was a well-kept secret. The few colleagues who did visit were strictly banned from talking about work. Yet despite his apparently laid-back approach, this fellow got results.

To be clear, I know this person only by reputation; Dwight Eisenhower died before I was born. But this is how he responded to the burdens of being supreme allied forces commander during the second world war. He found it essential to take time off.

We would all like to feel that our work is essential and our personal contribution irreplaceable. But, as Alex Soojung-Kim Pang, author of Rest: Why You Get More Done When You Work Less, notes, we’re unlikely to be doing quite as essential a job as Eisenhower’s. If he benefited from some down time, so might we.

But what sort of break is best? Should we be thinking of long sabbaticals, or is it enough to keep evenings and weekends free? Perhaps the ideal compromise is Bridget Jones’s dream of a “full-blown mini-break holiday weekend”?

The simple answer is all of the above. There’s something fractal about rest: we need it daily, weekly and yearly. That said, my reading of the (slim) evidence is that if you can bear the cumulative expense and the travel time, frequent short breaks beat the occasional elongated vacation.

Reason one: holiday memories tend to depend not on how long the holiday was, but on the intensity of the experiences. What matters is not how long you went away, but just how exciting and different the most exciting and different moments were. The first day of a visit to somewhere new will typically be more memorable than the tenth.

Reason two: a change of activity can be a spur to creativity. This need not be a long holiday; even an engaging hobby will do. Nobel Prize-winning scientists are much more likely to have serious arts and crafts hobbies than other scientists, who are in turn more likely to have serious hobbies than the rest of us.

Still, a holiday can help. Lin-Manuel Miranda was taking his first vacation for several years, at a resort in Mexico, when he read Ron Chernow’s biography of Alexander Hamilton, and was inspired to start working on what became the musical phenomenon, Hamilton. “The moment my brain got a moment’s rest, Hamilton walked into it,” he explained.

Intriguingly, Hamilton is, among other things, a musical about the importance of taking proper holidays.

“Take a break,” sings Hamilton’s wife, Eliza to her workaholic husband. “Run away with us for the summer, let’s go upstate.” Hamilton decides he needs to keep working instead and then makes sleep-deprived errors that led to his downfall.

Eisenhower’s aim in relaxing in his hideaway seems to have been to maintain his energy and good judgment. In short, he rested so that he could be a better general when he was working.

That leads us to reason three for taking a short break: if we need rest to prevent exhaustion, a single, long vacation won’t do the trick. Jessica de Bloom of the University of Groningen has found that the recuperative effects of a vacation tend to wear off in just a few weeks. You can’t store up the benefits of a long holiday any more than you can sleep for 24 hours then stay awake and sharp for the rest of the week.

All this raises another question, though: what should we do while we’re taking a break? According to Mr Soojung-Kim Pang’s survey of the available research, the ideal break offers relaxation, control, mastery and mental detachment.

By relaxation he simply means something that requires little conscious effort — from a walk to watching television. Control means autonomy over how you spend your time. Mastery refers to immersion in a challenging and absorbing task. An active holiday of skiing, sailing or rock climbing might do the trick — but so might a weekend of home improvements, assuming you’re better at putting up shelves than I am.

Finally there’s mental detachment — disconnecting from the responsibilities of the office. Such disconnection is harder than ever these days but it can help, even when the break is otherwise anything but relaxing. Business trips can be exhausting yet even they have been found to reduce burnout and stress, because they provide a break from day-to-day responsibilities.

And one 1998 study — by Professors Dalia Etzion, Dov Eden and Yael Lapidot — discovered that men called up for active reserve duty in the Israeli army found that the experience provided the same relief from burnout and stress in their normal lives that a holiday would have done.

It’s not that serving in the army is relaxing but that it provides a sense of distance from the day job. Unless, of course, your day job is in the army. In that case I recommend that you emulate Ike and enjoy a game of golf or bridge.

Written for and first published in the Financial Times on 16 August 2019.

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“If you want people do to something, make it easy.” Richard Thaler has Lunch with the FT

The Anthologist doesn’t serve cashew nuts, so I order a bowl of smoked almonds instead. When they arrive, caramelised and brown as barbecue sauce, I ask for them to be put right in front of Richard Thaler. He protests that the waiter isn’t in on the joke.

The readers will be, I assure him. “The educated ones, perhaps,” he concedes.

Those educated readers may know that Professor Thaler is a Nobel laureate economist, but even more famous as the co-author of Nudge. They may even know — from his later book, Misbehaving: The Making of Behavioural Economics — that the 73-year-old is fond of telling an anecdote about a bowl of cashew nuts that sheds light on his approach to economics.

He served the notorious bowl to some guests while dinner was roasting in the oven, then watched everyone compulsively munch on the nuts and gradually spoil their appetites. So Thaler decided to remove the temptation by hiding the cashews in the kitchen. His guests thanked him.

It would be an unremarkable tale, except that such behaviour simply does not fit the rational economic model of human behaviour. Either eat the cashews or don’t eat the cashews, says classical economics, but don’t thank the person who moves them out of easy reach.

Reflecting on such stories helped Thaler create “behavioural economics” — a branch of the discipline that aims at psychological realism. Doing so also helped him with the equally difficult task of persuading other economists to take the behavioural view seriously.

True, it’s just a story about cashews — but if you don’t think short-termism and weak willpower are economically significant in the grand scheme of things, I have a payday loan, a pension drawdown scheme and an auto-renewing gym membership to sell you.

And, sure enough, Thaler’s ideas about the importance of realistic human behaviour have permeated into the economic mainstream, particularly the study of finance. His policy proposals have influenced tax collection, organ donation, energy efficiency drives — and most notably pensions, where participation in workplace schemes dramatically increases when people must explicitly opt out if they are not to be automatically enrolled.

Thaler cultivates a happy-go-lucky persona, a man whose own weaknesses help him understand the weaknesses of others. “You assume that the agents in the economy are as smart as you are,” he once told Robert Barro, one of the pillars of the economics establishment, “and I assume that they’re as dumb as me.” Barro was happy to agree with that.

This sunny July, however, Thaler is a model of self-control. “Notice how many nuts I’ve had so far,” he announces, 20 minutes into our conversation. He gestures for emphasis. “Zero.”

I’m not surprised by that, although I am when Thaler — who struck me as a bon vivant — admits that he has been skipping lunch entirely. He’s in London for a fortnight, teaching a course at the London campus of the University of Chicago Booth School of Business, and after a generous breakfast he says he has neither the need nor the time for lunch.

This may also explain his lack of interest in the restaurant itself. We meet at the business school, and he’s chosen the closest place — announcing “it’s me again” to the waitress who stands outside. I don’t even glimpse the interior of The Anthologist, because she promptly directs us to a pavement table, which has a large masonry wall on one side and on the other — if you squint — a view down Gresham Street to a back corner of the Bank of England. The scooters and trucks roar past a couple of yards away, but Thaler has no trouble making himself heard.

He used to squeeze more out of his annual fortnights in London. “I would spend the morning with the Behavioural Insight Team” — the famous “nudge” unit established by David Cameron and inspired by Thaler’s book with the law professor Cass Sunstein — “then come and teach all afternoon. And then half the nights there would be dinners with friends. And I was comatose at the end of the first week.”

He does admit to having a few dinners planned, though — and to timing his visit to coincide with the Wimbledon Men’s Final. He and his wife, the photographer France Leclerc, had Centre Court tickets. Was he a fan of Djokovic or Federer?

“We support Rafa. Although if he had been playing in a match like that it might have got too much for my wife. She would have been hiding somewhere by the fifth set.”

It was the same on election night: the Trump/Clinton contest reduced his wife to a nervous wreck. “And who were you supporting in that one?” I ask. He gives me a withering look. “At least credit me with sentience.”

President Barack Obama seemed to appreciate behavioural economics and gave Thaler’s co-author, Cass Sunstein, a senior appointment. The Trump administration, observes Thaler, has no interest in behavioural economics. “Look, there’s no demand for expertise of any sort . . . The lack of competence and expertise is like nothing anyone has ever seen.”

Whitehall’s Behavioural Insight Team seems to be displaying more longevity than the White House equivalent. “The key move they made very early on was to extricate themselves from government.”

They’re now a semi-autonomous social enterprise in which the Cabinet Office retains a stake. They made that move, of course, before Cameron’s referendum-induced autodefenestration. “I will say that David Cameron never talked to anybody at the Behavioural Insight Team about the Brexit referendum”.

And what should they have said if he had? “One thing for sure is Remain is a horrible name. It’s weak. Whereas Leave is strong.”

Thaler has written about the referendum before in the Financial Times. He reminds me that Theresa May said, before the referendum: “The reality is that we do not know on what terms we would have access to the single market.”

The waiter interrupts us and presses Thaler to order some wine. He waves him away. “No, I have to teach for the next three hours.”

We return to May, and her explanation that a vote to Leave would be a vote for something undefined and unknowable. Yet as prime minister, she felt that it was quite sufficient to declare that Brexit means Brexit. “Brexit means Brexit — that is one of the dumbest statements that has ever been uttered by a head of state. And I’m aware that there are thousands of tweets one could compare it with. I mean, it’s simultaneously meaningless and wrong.”

The waiter finally manages to get us to order something. Thaler goes for a crispy duck salad. “It’s called salad, you know it has at least the illusion of being healthy”. I’m tempted by the Wagyu beef burger but feel ashamed (social pressure means nothing to homo economicus but is a powerful nudge for human beings), so I order some cod with samphire.

The waiter is keen to upsell. Spritzer? Some halloumi? Thaler and I are baffled by the suggestion of halloumi with cod and duck, although I would have cracked if the waiter had tried to sell us French fries.

We turn to the state of economics, and how it became so wrapped up in the idea of rational agents. Some of those models have a hypnotic pull, I suggest: they’re so ingenious, so difficult, and once you’ve understood how they work you don’t want to abandon them in favour of the bowl-of-cashews guy.

I’m recalling a time I was reading a classic article by Barro — in the emergency room, having dislocated my jaw after a spectacular yawn, which I protest was unconnected to the research paper in question. I don’t get far. “You should change this story!” hoots Thaler. “It should be that you read this paper and, literally, your jaw dropped.”

It’s a reminder that Thaler is a storyteller as well as a sharp theorist. Misbehaving is full of stories. “I decided to just start writing things that would amuse me,” he says — including an account of a huge academic bunfight over the allocation of corner offices at the University of Chicago economics department that cannot fail to provoke Schadenfreude.

“I sent that to my friend Michael Lewis. I said, ‘How much of the book could be like this?’ and he said ‘All’.”

Lewis (whom I interviewed here) isn’t a bad sounding board: he’s the author of Liar’s Poker, Moneyball and The Big Short. He also wrote a biography of Thaler’s friends and colleagues, the psychologists Daniel Kahneman and Amos Tversky. I wouldn’t mind getting him to look over my first drafts.

When it arrives, the cod is pleasant enough, but there isn’t much of it. I’m regretting not ordering the fries. The smoked almonds look tasty, but they’re across the table sitting beside Thaler’s left hand. He hasn’t so much as twitched towards them.

The key message of Nudge was that governments could improve the health and wellbeing of their citizens without infringing on their liberty, simply by more thoughtfully designing their rules, procedures, or even labelling. “If you want people to do something, make it easy.” Put the cashews in the kitchen and the fruit by the cafeteria checkout.

More recently, Thaler has been thinking and writing about what he calls “sludge”. It’s the same procedure in reverse: if you want people not to do something, make it difficult. Reaching for an example, Thaler has a bone to pick with The Times.

The first review of Misbehaving was published there, and Thaler’s editor sent him a link. “And I can’t get past the paywall without subscribing.” But then he notices there’s an offer of a month’s trial subscription at an introductory rate. “But I read further, having written a book about this, and I see that it will be automatically renewed.”

Not only that, it will be renewed at full price, “and that in order to quit, I have to give them 14 days’ notice. So the one month free trial is actually two weeks. And I have to call London [from Chicago] in London business hours, not on a toll free line.”

He pauses and chides me to check that the FT isn’t placing similar sludge in the way of readers who wish to unsubscribe. I assure him that nobody would ever want to unsubscribe, but in any case such knavery would be beneath us. But part of me wonders. “Check your policy at the FT,” he advises. (Later, I check. The FT offers a very similar introductory offer, but I am relieved to discover that the newspaper offers regional phone numbers and you can also cancel online.)

While we’re talking about the consumption of digital goods, I am keen to ask him about how he deals with email, smartphones and social media. We’re in the middle of a colossal set of experiments in behavioural manipulation that would have been hard to imagine when Sunstein and Thaler wrote Nudge over a decade ago. Google, Apple, Facebook and Amazon are constantly running little trials to see what we do in response.

“The world has changed. I remember that while we were writing the book, I got my first iPhone.”

But does it tempt him? Distract him? An iPhone, it seems to me, is a bottomless bowl of digital cashews. But he’s not worried. “I’m not on Facebook at all . . . I am on Twitter and I find much of it to be quite useful. There’s a growing academic economics Twitter that’s fantastic. There’s almost no ad hominem. There are people live-tweeting conferences. Fantastic. There are people who will give a 10-tweet summary of some new paper.”

Thaler stops eating his salad — he’s managed to get most of it down, in between his answers. I’ve long since finished my little piece of fish. The smoked almonds have somehow migrated into the centre of the table, easily within my reach. They are untouched. “Let the record be noted that my consumption so far is zero,” he declares.

Thaler isn’t interested in coffee or dessert, but says he has time if I want something. I order espresso. After it arrives, I take a sip, and then my hand moves instinctively towards the almonds before I catch myself. He laughs. “That was a trembling hand.”

My involuntary slip prompts us to start talking about accidents. “Here’s something I was thinking about this morning,” he says. “All these announcements to mind the gap. Can that conceivably be useful?”

“Mind the gap,” is part of the sonic wallpaper of the London Underground, a reminder not to accidentally stumble into the space between Tube train and platform. I wonder if Transport for London has run an experiment. “I’m wondering that too.” Although we both doubt it.

“Now here’s my hypothesis. 99.9 per cent of the people on the Tube have blocked this out long ago. And whatever the percentage of tourists is, half of them have no idea what ‘mind the gap’ means. It could be ‘cheerio’.”

In short, the people who might conceivably benefit from the warning probably don’t understand it. So why not experiment with some different approaches to see if that reduces accidents?

The proposal is typical Thaler. He’s noticed a feature of everyday life that most of us either overlook or take for granted — and he’s turned it into an easily implementable experiment that might actually make the world a better place.

It’s time for him to go and teach. We shake hands, and then he reaches forward, slowly and deliberately, for a smoked almond. He holds it up in front of me as though displaying a fine diamond.

“One!” he says. Then he pops it into his mouth, and ambles off towards the business school. Only when his back is turned do I dare grab one myself.

The Anthologist 58 Gresham St, London EC2

Smoked almonds £3.75

Crispy duck salad £11.50

Cod with samphire £14.95

Sparkling water £3.95

Double espresso £2.90

12.5 per cent service £4.63

Waiter rounds up the bill (a nudge?) £0.32

Total £42.00

 

==

 

 
Written for and first published in the Financial Times on 2 August 2019.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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The magic of picture books

Perhaps it’s the holiday feeling, but I’ve been looking at books with lots of pictures recently.

First, Randall Munroe’s marvelous How To. It’s in much the same style as What If? and just as funny and informative. I loved it, then my twelve year old daughter stole it and she loved it, then my eight year old son stole it and he loved it. I suspect we’re all getting something different from the book, which explores such questions as: If you wanted to fill a swimming pool with bottled water, could you open the bottles with atomic weapons? (There is actually a study of this question…) If you wanted to ski down a hill with no snow, would it work to drag a snow-machine along with you? How feasible is it to boil a river dry with a big array of kettles? Needless to say, strongly recommended.

Very different, from the equally talented cartoonish Zach Weinersmith and always-interesting economist Bryan Caplan, is Open Borders – which is a polemic essay, illustrated by Weinersmith, arguing for dramatically more liberal rules on immigration. I’m much more sympathetic to this idea than most people, so perhaps not best placed to find the holes in the argument, but it’s well worth a read: Caplan makes a strong case, founded on the idea that immigration is good for the global economy while respecting the basic liberty of every person in the world. Of course, there are many possible objections both to the argument, and to the policy, and Caplan works through all the obvious ones, arguing against them – sometimes from first principles and sometimes by appealing to data. And it’s all pictures – which does make it quick and fun to read.

And different again: I finally, three decades late, decided I should read Sandman by Neil Gaiman. Two volumes in and I’m loving it. The first volume is occasionally shlocky, awkward or exploitative to modern sensibilities – but only occasionally. Gaiman, one feels, is still finding his feet. Still, most of it is spellbinding. And volume 2 is even better. If you haven’t read it, you should.

One more thing. My father and I are going on an all day walk to raise money for Rennie Grove Hospice Care. I’m not going to pretend it will be a sinew-shredding challenge, although I hope to pick up a blister or too. But it’s a very good cause and we’d be most grateful for any support you can give. My mother died of cancer in 1996 and our whole family hugely valued the hospice care she received during her long and difficult illness.

Thank you in advance.

 

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1st of September, 2019MarginaliaResourcesComments off

What we get wrong about meetings – and how to make them worth attending

I rely on Google Calendar to tell me where I am supposed to be, when and with whom. When the service collapsed for an afternoon last month, it felt like a teachable moment. For a few seconds, I panicked. Then, I realised that with all the meetings gone, I was free to do some real work.

I know I’m not the only person who loves to hate meetings. Will There Be Donuts?, a book by David Pearl, skewers the “Wagner meeting” (of epic length), the “mushroom meeting” (appears suddenly, multiplies rapidly) and the “Stonehenge meeting” (it’s been a fixture for ages but nobody knows why).

Yet Mr Pearl also acknowledges that ineffectual meetings often suit us. Boring meetings make us feel interesting by comparison. Long meetings pass the time. Indecisive meetings postpone painful choices.

Meetings frustrate when they reveal painful disparities in power. For subordinates, meetings are often the things that get in the way of doing their job. For the person with the power — the manager — meetings are the job. The manager can even offload the scheduling on to her secretary. No wonder some staff feel resentful of meetings while their managers are oblivious.

That said, the relentless democracy of a meeting where everybody must be heard is a kind of torture in its own right. Never-ending consultations are a good way to ensure that nothing ever happens and nobody has to take responsibility. Oscar Wilde never said that socialism “would take too many evenings” but if he’d met UK Labour leader Jeremy Corbyn, he surely would have.

Some meetings are to transfer information, some to allow discussion and some to reach a decision or resolve a problem. There are committee meetings that exist to satisfy some rule or regulation. I am on such a committee, and find it useful as a reminder not to sign up for any other committees. Then there are the meetings that exist purely for the sake of meeting. Don’t dismiss them; there’s nothing wrong with consenting adults enjoying a coffee break together. There doesn’t always need to be a reason.

But nothing undermines a meeting more than a lack of agreement as to why it’s happening. I know a school that invites parents in for curriculum meetings. The teachers think they’re explaining their approach to the parents; the parents are under the misapprehension they’re being asked for their input. Nobody goes away happy.

Yet despite all the well-justified complaints, there are many situations in which there’s simply no substitute for a meeting. For quickly co-ordinating a shared task, it’s perfect. A few minutes is often sufficient. “Agile” working methods call for a “scrum” in which team members briskly report what they did yesterday, what they’re going to do today and if there’s anything stopping them. A newspaper’s morning editorial conference serves a similar purpose, without the funky terminology.

Or perhaps the meeting is a workshop designed to produce ideas. Some people will assert that meetings are creativity killers, and “a camel is a horse designed by committee”. But this is absurd. We’ve all been in conversations where one idea sparks another. And while an individual can write a novel or paint a portrait, solo creativity is no way to produce nuclear fusion or a new antibiotic. In a world full of specialists, complex projects require collaboration. Meetings can and do generate ideas that no individual could have conceived alone. They do not do so automatically, however.

A persistent myth is that “brainstorming” — the unfiltered, no-wrong-answers, bellowing out of ideas — is a reliable route to innovative brilliance. Psychologist Keith Sawyer, the author of Group Genius, points out that there are many reasons to doubt this. In brainstorming, individuals distract each other, groups fixate on particular topics and some people use the opportunity to stop thinking entirely. Twelve people generate more ideas if they work separately than if they brainstorm together.

The meeting serves a far more important creative purpose when it is time to criticise, evaluate and combine those ideas. Charlan Nemeth, a psychologist at UC Berkeley and author of In Defense of Troublemakers, has found that groups come up with more ideas — and, importantly, better ideas — when they are invited to debate and dissent. It may even be worth breaking the meeting into subgroups with the express purpose of developing competing ideas. “Do not criticise” is a handy rule for new grandparents; it’s not a good approach for innovators.

In a daily scrum, everyone arrives with a brisk update and leaves with a crisp to-do list. In a creative workshop, everyone arrives with a boxful of ideas, ready to discard some and weave the rest together. There’s a big difference between the two types of meeting, but there’s also a clear common thread: people come prepared, have a reason to work together and finish the meeting with a clear sense of what comes next. A good meeting is a good meeting less because of what happens at the time, but because of what came before — and most importantly, what comes after.

 

Written for and first published in the Financial Times on 26 July 2019.

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US health care is literally killing people

It is astonishing how far the debate on healthcare has moved in the US, at least for the Democrats. Not long ago offering universal, government-funded healthcare was viewed as tantamount to communism; now, it’s a touchstone of many presidential hopefuls.

Not before time. The US healthcare system is a monument to perverse incentives, unintended consequences and political inertia. It is astonishingly bad — indeed, it’s so astonishingly bad that even people who believe it’s bad don’t appreciate quite how bad it is.

I don’t say this out of any great devotion to the UK alternative. The National Health Service works well enough for a vast tax-funded bureaucracy, but it might work better if we didn’t view any attempt at reform as the desecration of a holy institution. Nor do I have bad experiences of US healthcare. My daughter was born in America, where my family had sensitive and expert medical care. But that’s what you’d expect with a good health insurance plan — something that many Americans don’t have.

Around 27m people — 10 per cent of the non-elderly US population — have no insurance at all. That is precarious, given that a serious illness or accident could incur bankruptcy-inducing costs. Yet the astonishingly large number of people living on the edge is still progress: before the passage of the Affordable Care Act under President Barack Obama, the figure was closer to 45m people.

It’s this lack of anything resembling universal access that seems most grotesque to observers from other rich nations. But it’s just the beginning of the costs that the US health system imposes on Americans.

The financial costs are most obvious, and they are truly extraordinary. For a family of four, the US system costs about $13,000 a year more than that of Switzerland, which itself is substantially more expensive than any other. The US system costs more than twice as much, per person, as the universal coverage provided by the UK’s NHS. Even the government-funded part of the US system costs more per capita than the NHS.

Why so expensive? It’s because US doctors prescribe more treatments, and those treatments cost much more than they do elsewhere. Most governments limit the price of treatments, freeriding on the US market to stimulate investment in medicine. American hospitals and drug companies have enormous leeway to raise prices — insurers have limited bargaining power, and uninsured patients even less.

Nor is all this money bringing any obvious reward. Compared with other rich countries, the US ranks at or near the bottom on life expectancy, infant mortality, adolescent pregnancy, sexually transmitted infections, drug-related mortality, obesity, diabetes, heart disease, lung disease and arthritis. No, the healthcare system can’t be blamed for all that — but it is hardly covering itself with glory.

One of the striking tragedies of modern America, brought to light by the research of the economists Anne Case and Angus Deaton, has been the phenomenon of “deaths of despair”, from suicide, alcohol abuse and overdoses. Such deaths go a long way to explaining why mortality rates for middle-aged white Americans have stagnated or perhaps even risen in the US, while falling fast in other rich countries.

I recently had the opportunity to ask Prof Case and Sir Angus to what extent the US healthcare system was to blame. Their answer, in a nutshell: it would be an exaggeration to blame the system entirely but not a gross exaggeration.

The most obvious connection is that the opioids that have played such a role in these deaths of despair were supplied by the healthcare system. Opioids are a simple and profitable palliative for a widespread condition (“I’m in pain”) rather than a cure for anything. Doctors and drug companies made more money if they prescribed more opioids, and human nature being human nature, found ways to justify that decision to themselves.

The dysfunction of the US healthcare system has also eaten away at American wellbeing in other ways. Those extraordinary costs — more than $10,000 per person — must be paid by someone. When they are paid by employers, through workplace health plans, rising healthcare spending becomes a substitute for the rising wages that workers so desperately want.

And those extortionate costs also give employers a powerful reason to jettison staff at every opportunity, employing freelancers and subcontractors in the hope of cutting the cost of employer-sponsored health insurance. As a result, people feel disconnected from the workplace. Jobs become insecure ways to scrape a living, rather than sources of identity and pride. For many, despair follows.

Such problems are easier to diagnose than to cure. Reforming American healthcare will require an almighty effort. With politics gridlocked and soaking in lobbyist money, it’s not obvious that the US government is capable of running the kind of healthcare system that works elsewhere — even if Congress decides to try. But try it must, because the status quo is a tragedy.

 

 

Written for and first published in the Financial Times on 12 July 2019.

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The strange power of the idea of “average”

“While nothing is more uncertain than a single life, nothing is more certain than the average duration of a thousand lives.” The statement is often attributed to the 19th-century mathematician Elizur Wright, who not coincidentally was a life insurance geek. But buried in the aphorism is a humdrum word concealing a powerful idea: the “average”.

The idea of taking an average — that is, of adding up (say) a hundred lifespans and dividing the total by a hundred, to produce the arithmetic mean — seems absurdly simple. But Stephen Stigler, a historian of statistics, reckons it is the most radical statistical operation ever devised. I am inclined to agree. The mean has a strange power over the way we think, and not always a benign one.

We do not know who invented the arithmetic mean. The statistician Churchill Eisenhart once tried to trace its history. It was originally used as a way of combining various observations that should be identical, but were not — for example, estimates of the direction of magnetic north.

In 1635 the mathematician Henry Gellibrand used the word “meane” to describe the midpoint of a lowest and highest number — not the same thing — but by 1668, a person known as “DB” was quoted in the Transactions of the Royal Society describing “taking the mean” of five values casually enough to make it clear that the concept was by then established.

Why is this such a powerful idea? As Prof Stigler puts it in The Seven Pillars of Statistical Wisdom, “you can actually gain information by throwing information away”. This is true in the straightforward sense that too many numbers become confusing: more than 50m people died last year, but if I could somehow show you a hundred-mile long printout of all their ages at death, you might struggle to learn much from it.

But the mean also eliminates errors. In the context that Gellibrand and DB were writing, taking an average cancels out mistakes in the original observations. This was by no means obvious. When confronted with contradictory measurements, the instinct of mathematicians had been to figure out which one was best and to dismiss the rest. But taking the average was a far better way to eliminate error.

And yet in this method lies a trap, because not all variation is error. The trap was sprung in the 1830s by the hugely influential statistician Adolphe Quetelet, who was an astronomer as well as a founder of the idea of “social physics” — using statistical techniques to understand humans and their societies.

Quetelet asked us to imagine that a thousand sculptors had made a copy of a famous statue of a gladiator. Each copy would have some errors or imperfections — but on average, they would be a perfect copy. So far, so good. But then, Quetelet continued, if we measured a thousand real soldiers and averaged their body measurements, we could get the ideal, perfect soldier. “L’homme moyen” — the average man — was Quetelet’s benchmark for perfection. (What about “la femme moyenne”? Well, quite.)

But as Todd Rose points out in The End of Average, Quetelet’s logic isn’t just andro-centric. It’s nonsense. A tall copy of a statue may be an error, but a tall soldier is not — and may well benefit from having superior reach.

Quetelet did not lack for critics. His contemporary, the mathematician and proto-economist AA Cournot, correctly argued that the Average Man probably didn’t exist. Victorian statistician Francis Galton was fascinated by averages, yet asserted: “No statistician dreams of combining objects into the same generic group that do not cluster towards a common centre . . . if we do so the result is monstrous and meaningless.”

But this idea of the average as perfection did not die. In an age of mass production it was too convenient. Production-line managers and modernist architects found it easy to design for the average person.

In 1943, the sculptor Abram Belskie and obstetrician Robert Dickinson turned Quetelet’s metaphor into reality, carving statues of “Normman” and “Norma”, based on the average measurements of 15,000 young adults. The US press loved Norma in particular: she was regarded as female perfection, at least from the male perspective. (It would be a stretch to describe the statue as “monstrous”.) Yet a competition to find an actual woman who matched her dimensions did not succeed. Being precisely average is not the same thing as being perfect — but it is just as rare.

We no longer have to fall into this trap. It is still hard to personalise rather than standardise — but it is not impossible. Drugs are not best evaluated by the average effect over thousands of patients. Social care will fail if it is designed only for the average recipient, or education for the average pupil. A forecasting model that is correct on average may be a very dangerous model indeed.

Elizur Wright was quite correct to declare that a single life is uncertain; but we should never leap to the conclusion that an average life is ideal.

 

 

Written for and first published in the Financial Times on 5 July 2019.

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How economics can raise its game

How can economics become a more insightful discipline? Should it aim to be more like physics, with its precision and predictive power? Or should economists emulate anthropologists or historians, immersing themselves in the details of the particular and the unquantifiable?

There’s a case to be made either way. Some critics argue that economics is missing better physics: it got stuck in the 19th century with fusty old ideas like marginal analysis and equilibrium, and missed out on cool ideas like chaos theory and phase transitions that promise to shed insights on economic complexity or sudden crises. (See, for example, Philip Ball’s excellent book, Critical Mass.)

Others say that economics needs to put the mathematics down and back slowly away. As Immanuel Kant put it, “out of the crooked timber of humanity, no straight thing was ever made”, so economists should be less fond of putting rulers against everything.

The fact that both views have the ring of plausibility suggests that this is a tougher challenge than it might appear from the sidelines. Now a new paper addresses the question from the heart of academic economics: Nobel laureate George Akerlof, writing in the Journal of Economic Literature.

Prof Akerlof, now at Georgetown, argues that the academic discipline of economics rewards “hard” rather than “soft” research with publication in the top journals, and therefore with promotion and status. We know “hard” when we see it: numbers are harder than words, quantities harder than qualities. Causation is harder than correlation. Physics is “hard” and sociology “soft”.

There is much to be said for hard science. The downside is that certain questions cannot be answered — or perhaps even asked — in precise, mathematical, causal terms. They are still important, and if economics insists on “hard” methods it will overlook them.

Another Nobel laureate, the late Gary Becker, reflected on his college studies: “I began to lose interest in economics . . . because it did not seem to deal with important social problems. I contemplated transferring to sociology, but found that subject too difficult.”

What is fascinating about that remark is that Becker earned his prize by applying the hard-ish tools of economics to areas that seemed to belong to softer disciplines: addiction, discrimination, marriage and education. How well he succeeded remains a matter of debate. Personally I believe he contributed a lot.

Yet plenty of sociology remains outside the reach of the economists’ tools: it is important but too soft — or in Becker’s words, “too difficult”. More awkwardly for the economics profession, some key economic questions also seem more likely to yield to soft than hard approaches: what are the obstacles to social mobility? Where does innovation come from? Can we strengthen the institutions that matter for prosperity?

Beyond any particular problem there is also the challenge of combining insights from highly specialised subfields. Raghuram Rajan, when he was chief economist of the IMF, came closest to predicting the 2008 financial crisis. He later observed that economists had written insightfully on all the key issues but had lacked someone capable of putting all the pieces together.

Is this also a hard/soft problem? Prof Akerlof thinks so. He argues that the bias towards hard analysis also produces a bias towards specialised silo thinking, and that being a generalist is something of a soft skill.

I’m not sure that’s right. Certain mathematical tools are both highly portable and distinctly hard-edged. But it is surely true that the kind of synthesis that would have identified the looming crisis would have been too discursive to be published in a top economic journal.

So I am not completely persuaded that economics is, on average, “harder” than it should be. But I am in complete agreement with the recommendation that economics needs to be more tolerant of different methods, whether the latest ultra-hard physics or the softer explorations of anthropology or even a business-school case study. After all, the economy encompasses a lot of different things; why should it yield only to a particular set of analytical tools?

Economics has certainly profited from the insights of those outside the field, such as psychologist Daniel Kahneman, and the late Elinor Ostrom, a political scientist whose ambition to study economics was thwarted because, as a girl in the 1940s, she’d been steered away from mathematics. Both have Nobel memorial prizes in economics.

The insights can flow the other way, too. Charles Darwin’s theory of evolution was influenced by the economist Robert Malthus’s Essay on the Principle of Population. When working on the kinetic theory of gases, physicist James Clerk Maxwell drew inspiration from social scientists and their habit of thinking in statistical approximations about large populations.

It is easier to make such a recommendation than to embrace it. The further the leading economics journals stray from their core expertise, the more difficult they will find it to distinguish good work from bad. But at the margin, such moves offer a lot of promise.

 

Written for and first published in the Financial Times on 28 June 2019.

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How the Brexit debate was flushed down the drain

On a scale of one to seven, how well do you understand how a flush lavatory works?

This was a question asked by two Yale psychologists, Leonid Rozenblit and Frank Keil, almost two decades ago. Before I explain why, here’s a follow-up exercise: write down your lavatory explanation in as much detail as you can. You may wish to draw a diagram, or explain it to a friend. Or not.

You may then reflect that you knew a little less than you realised. That was the experience of many of the study’s subjects — and not just for lavatories (why does all the water disappear down the U-bend?) but also for zips, quartz watches, helicopters, speedometers, cylinder locks, piano keys and sewing machines. People felt they understood the mechanisms that surrounded them, but their confidence was severely dented by the simple act of giving them pencil and paper and saying: “Show me.”

The same exercise can be performed with politics. In 2013, Steven Sloman and Philip Fernbach, authors of The Knowledge Illusion, were members of a research team that did just that, inviting people resident in the US to rate their understanding of American policy proposals such as introducing unilateral sanctions on Iran, a cap-and-trade system for carbon emissions and a national flat tax. They also asked people to rate their approval of each policy, which would have been unnecessary for lavatories and zips. (Lavatories are useful, zips self-evidently malevolent.)

Professors Sloman and Fernbach and their colleagues found that — just as with locks and speedometers — people tended to overrate their knowledge at first, and then discover some humility when asked to be more specific.

Perhaps British voters could use a dose of the same medicine when it comes to our understanding of Brexit. Leave or Remain, many of us came late to the realisation that there was a difference between the single market and the customs union. I am still not sure most people can explain what that difference is. Many people have strong views about Prime Minister Theresa May’s withdrawal agreement; rather fewer could give a convincing account of how it differs from the political declaration that accompanies it.

When Mrs May began her premiership with the statement that “Brexit means Brexit”, it dawned on most of us that the details of the whole project might need a little more work. But she wasn’t the only one who was vague.

I’d love to see the contenders for the Conservative party leadership quizzed a little less about their cocaine habits and instead forced to sit down and write a detailed explanation of what a no-deal Brexit actually is. While we wait, perhaps the same exercise could be given to the 160,000 Conservative party members who are about to select the country’s next prime minister.

How long, for example, will HM Revenue & Customs wave through imports without inspections? Will the French reciprocate? What are the implications of “trading under World Trade Organization rules” for the UK’s banking and insurance industries? How large are those industries?

How many other developed countries are content to rely solely on WTO arrangements in their trade with the EU? Is the WTO capable of enforcing the rules anyway, given the current crisis in its appellate body? How likely is the EU to grant permission to British farmers to sell meat, milk or cheese? Would any of these decisions be different if the UK refused to pay the “divorce bill” it had negotiated?

I don’t think it is especially shameful that we ordinary voters are incurious about the ins and outs of Brexit, any more than we should be obliged to understand the workings of a quartz watch. An ability to read the time is generally sufficient. But I am stunned by just how little we seem to demand of our political leaders.

We want tailors to understand sewing machines, locksmiths to understand locks and plumbers to know that a lavatory is basically a siphon. But our standards for politicians seem far lower. The next prime minister is likely to be a person who believes that if we demanded it with enough gusto, sewage would remove itself from our homes in some scatological remix of Mary Poppins — and that anyone who tells you otherwise is clearly a shill for Big Porcelain.

We should expect more of anyone who wants to lead the country. And since our politicians have grown so fond of punting the hard questions back to us, perhaps we should also demand more of ourselves.

Profs Sloman and Fernbach found that asking people to explain the workings of the policies they so fervently supported or opposed had a humbling effect. When people realised that they knew less than they had once believed, they quite reasonably wound their necks in as a result. It seems strange to die in a ditch for something we can’t clearly explain, even to ourselves.

Next time you find yourself in some heated political debate, perhaps you should suggest that both sides pause to explain the policy in question. You may find you understand less — and agree more — than you realised.

Written for and first published in the Financial Times on 21 June 2019.

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How the US is weaponising the world economy

Back in 2002, serious people were worried about the possibility of a nuclear exchange between India and Pakistan. Millions might have died — and the prospect seemed real enough that both the US and the UK advised their citizens to flee the region. How, then, was the crisis defused?

Thomas Friedman, author of The World Is Flat, is fond of telling the story that US businesses (in particular Dell) told their Indian suppliers (in particular Wipro) to calm things down or get cut out of the loop. And things did indeed calm down, so perhaps it was the concerns over Dell’s supply chain that prevented catastrophe. Perhaps.

Mr Friedman duly coined the phrase “the Dell Theory Of Conflict Prevention”: no two countries will go to war if they are part of the same global supply chain. He was never entirely serious about that, but the question now arises: did he have it backwards? Rather than a line of defence against hostile action, might global supply chains be a line of attack?

One example is the recent executive order banning US companies from working with Huawei, effectively denying the Chinese telecoms company the use of Qualcomm’s chips and Google’s Android operating system. Another was Mr Trump’s crude — and fleeting — threat to slap tariffs on Mexico if it didn’t satisfy him on immigration policy.

It is tempting to view such actions as uniquely Trumpian. Would any other president threaten sanctions against one of its largest trading partners, via Twitter, with 10 days’ notice, at the very moment they were presenting the new Trump-championed trade agreement to the Mexican senate?

Yet while a different president might act with more subtlety, the US seems unlikely to abandon the aggressive tweaking of the nerves and sinews under the skin of the world economy. Henry Farrell and Abraham Newman — political scientists at George Washington and Georgetown Universities, respectively — have popularised the term “weaponised interdependence”, the title of a forthcoming article in the journal International Security.

Messrs Farrell and Newman point out that supply chains and digital networks can be used both as a “panopticon” to see everything that happens and as a “chokepoint”, denying access to some vital service. Both approaches require a certain bureaucratic apparatus — something that would be hard to disassemble once in operation. There is more going on here than the whim of “Tariff Man”.

Consider Swift, the international financial messaging system. Although Swift does not directly handle transfers of money between banks, it provides the secure service that makes those transfers possible. Swift is a private company based in Brussels, yet last summer it found itself on the receiving end of US demands to cut off Iranian banks. The EU, in turn, demanded that it did not comply. Forced to pick a side in this tug of war, late last year it picked the US.

That is an indication of just how much power the US can wield if it is determined to do so. And the temptation is strong: it seems far safer to attack Iranian interests through stern letters to a messaging service in Brussels than with a carrier strike group.

That very temptation, of course, risks over-reach. The US is not the first global superpower to ponder the use of financial and communication networks as a weapon of war. In the early 20th century, modern economies were increasingly underpinned by complex financing. Britain viewed the central role of the City of London in the world’s banking, telegraph and marine insurance system as potentially decisive when coupled with the power of the Royal Navy. Should war break out with Germany, these networks could be used to sustain the UK economy while crushing that of Germany.

The idea seemed plausible, but needless to say, these plans for economic shock and awe failed both to head off the first world war and to limit its duration and brutality.

Two questions arise: would the US be wise to use its economic leverage more sparingly? And should other nations be building alternative networks beyond the hegemon’s gaze and grip?

It is too easy to say that the US should restrain itself in its own enlightened self-interest. The logic of network effects is self-reinforcing. Having established a central position in finance through Wall Street and the mighty dollar, and in digital networks thanks to Silicon Valley and the Pentagon’s role in funding the early internet, the US advantage may endure many abuses.

Still, the more the US seeks to coerce others through its privileged position in banking and the internet, the greater the incentive to develop alternatives that cut the US out of the loop — for example, a Chinese-built operating system for smartphones, or Instex, the special purpose vehicle launched by France, Germany and the UK to allow companies to do business with Iran beyond the reach of US punishment.

Wolfgang Munchau described Instex as “a dysfunctional insurance vehicle for small carpet traders”; it turns out that these alternatives are not cheap or easy to develop. In ordinary circumstances, few would even bother to try. But if the US presses too painfully on the global economy’s nervous system, its rivals and even its allies will look for relief.

 

Written for and first published in the Financial Times on 14 June 2019.

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