Tim Harford's Blog, page 10

The truth about the forecasting paradox

Here’s the problem with forecasts: some of them are right, and some of them are wrong, and by the time we find out which is which, it’s too late. This leads to what we might call the forecasting paradox: the test of a useful forecast is not whether it turns out to be accurate, but whether it turns out to prompt some sort of useful action in advance. Accuracy may help, but then again it may not. Forewarned is not necessarily forearmed.

Consider the challenge I was set when speaking at a post-pandemic conference. One questioner told me that at the previous conference, in late 2019, the keynote speaker — a famous scientist — had warned of the risk of a global pandemic. Could I offer a better forecast than that? It depends on what you mean by better. Could I offer a more timely, accurate forecast about a question of global consequence? Of course not. But could I offer a more useful forecast? Probably. The bar had been set lower than you might think.

The 2019 audience had heard a generic warning that there might be some kind of pandemic one of these days, collectively shrugged and done nothing. Neither they nor the speaker realised the pandemic in question was just weeks away and none of them were in a position to do much about it anyway. The forecast had been brilliant — and useless.

Twenty years ago, the forecasts of disaster facing New Orleans should have fared better. The Federal Emergency Management Agency had warned that one of the three most probable catastrophes facing the US was a hurricane striking low-lying New Orleans. As the storm closed in, in 2004, newspapers described every detail of the risk, from a failure of the levees to the impossibility of a mass evacuation and the prospect of hundreds or even thousands of deaths.

At the last minute the hurricane — Ivan — turned aside. Yet the prophecies of doom came true in almost every respect a year later when in 2005 Hurricane Katrina devastated New Orleans. The year’s delay could have made the forecasts more useful, not less, by giving city, state and federal authorities time to prepare. Alas, they did not.

In contrast, Brigham and Women’s Hospital in Boston didn’t forecast a situation in which two bombs exploded at the Boston Marathon. But in April 2013 they were nevertheless prepared when it happened, having run 78 major emergency drills covering everything from oil spills to train crashes.

The world of speculative fiction is full of forecasts that made us wiser despite never coming true. I contacted activist and science-fiction author Cory Doctorow, who pointed me to Mary Shelley’s Frankenstein, “the first Luddite novel”, and Margaret Atwood’s The Handmaid’s Tale. Then an insurance executive was murdered in Manhattan — a scenario foreshadowed in the short story Radicalized. The author? Cory Doctorow. Fiction can help us see the future.

Perhaps you feel that no novel should really count as a forecast. Consider instead the idea of the “pre-mortem”, advocated by the psychologist and author Gary Klein. The pre-mortem is a project-planning exercise in which a team adopts a position of “prospective hindsight”. Let’s assume the patient died on the operating table, or that the new IT project suffered a massive cost overrun, or that the dinner party was a humiliating flop. Given that assumption, why? What went wrong?

Research conducted in the late 1980s by Deborah Mitchell, Jay Russo and Nancy Pennington found that this perspective helped people to generate more ideas, with more detail, about why a project might succeed or fail. A pre-mortem is intended to be a self-defeating forecast. The idea is that by helping a team brainstorm a list of quite specific things that might go wrong, disaster will be averted.

The great psychologist Amos Tversky quipped that most people lump their forecasts into three categories, “gonna happen”, “not gonna happen” and “maybe”. That seems right to me, but the problem with such crude intuitions is not that they’re insufficiently precise, but that they allow us to short-circuit any further thought on the matter.

That’s a shame. Thinking seriously about the future can be a worthwhile exercise, not because the future is knowable but because the process is likely to make us wiser. One surprising piece of evidence for that comes from forecasting experts Barbara Mellers, Philip Tetlock and Hal Arkes. A few years ago, they ran a multi-month forecasting tournament and surveyed the opinions of the participants before and after. They found that the process of thinking seriously about forecasts softened the preconceptions of the competitors. They had become more politically moderate and more inclined to attribute moderation to their political opponents.

More broadly, a scenario-planning exercise encourages people to recognise that the world is an uncertain place. Many years ago I worked in the scenario-planning game, and one of our mantras was “scenarios are not forecasts”. I think I understand that statement a little better now. Scenarios are not forecasts because they are not aiming to be accurate, but to be useful. The forecasting paradox tells us that those two qualities are very different.

Written for and first published in the Financial Times on 3 January 2025.

Loyal readers might enjoy the book that started it all, The Undercover Economist.

I’ve set up a storefront on Bookshop in the United States and the United Kingdom. Links to Bookshop and Amazon may generate referral fees.

Cautionary Tales – Frozen in a Burning 747 (Tenerife Air Disaster 2)

Two airplanes have just collided on the runway at Tenerife Airport. While no one on the Amsterdam-bound KLM plane survives the resulting fireball, 71 Pan-Am passengers and crew make it off their plane. But could it have been more? Why did so many Pan-Am passengers die, even though they weren’t injured by the initial collision and their plane was still on the ground?

This episode was previously released on Pushkin+

[Apple] [Spotify] [Stitcher]

Further reading

Collision on Tenerife: The How and Why of the World’s Worst Aviation Disaster is a comprehensive account by author Jon Ziomek and Caroline Hopkins, one of the Pan Am survivors. Fellow survivor David Alexander’s book is called Never Wait For The Fire Truck.

We drew on a range of official reports into the accident, including those conducted by the Airline Pilots Association, the Netherlands Aviation Safety Board, Spain’s Subsecretaria de Aviacion Civil, and the Armed Forces Institute of Pathology. The websites Project Tenerife and Peter’s Tenerife Crash Page contain further useful resources, along with reportage in outlets such as Salon, the Los Angeles Times and the Daytona Beach News-Journal.

For more on the Moses Illusion, see From Words to Meaning: A Semantic Illusion and A case study of anomaly detection: Shallow semantic processing and cohesion establishment. For attempts to avoid the Moses Illusion in air communications, see A Guide to Phraseology for General Aviation Pilots in Europe.

For more on the fight, flight and freeze response, see Walter B. Cannon and the Invisible Rays, The Effects of Acute Stress on Core Executive Functions, Why People ‘Freeze’ in an Emergency,  Freeze for action: neurobiological mechanisms in animal and human freezing, and Fear and the Defense Cascade.

What if DogeCoin became the official US currency? Your strange economics questions, answered.

What if the total sum of wealth in the world was immediately and simultaneously redistributed equally among the six billion adult people in the world? — Bezz

UBS’s Global Wealth Report puts global wealth at around $450tn, which would mean each adult would get about $75,000. On the day that your proposal goes into effect, five million people would be just a day too young — 17 years and 364 days old — to receive their money. That’s a tough break for them and a strangely invidious situation for such an ostentatiously egalitarian policy. There are some intriguing practicalities, too. Let’s say you own your own home outright, and that it’s worth $375,000, or five times your share of global wealth. What to do? After the redistribution, you own only 20 per cent of your dwelling, and four other people own the other 80 per cent. Tricky. Now you have to pay rent to a nice family of four who live in Turkmenistan. It might feel awkward but that’s equality for you. Let’s say the annual rent is 5 per cent, that’s $3,750 each, a little more than one-third of Turkmenistan’s GDP per person. That’s a lot of money to each of our Turkmen friends but not enough to turn Turkmenistan into Switzerland, nor indeed Switzerland into Turkmenistan.

Whether the redistribution would be enforceable is a nice question. I could easily imagine that some people might refuse to send such large sums to complete strangers, and I could less easily imagine the global taxman who is going to insist that they do. Even if the redistribution goes off smoothly and payments are made in good faith, global wealth will not remain equally distributed. Quite apart from all those people turning 18 just a day or so too late, and those who die, leaving wealth to be inherited or redistributed, people will make choices: some will spend the money, others will invest it, still others may give it away. And people will keep earning money at vastly different rates. So one question will weigh heavily on everyone’s minds: when is the next instantaneous redistribution going to happen?

What if tax were levied on leisure time? Governments looking to stimulate the economy would cancel weekends, while those looking to quieten the economy would issue new bank holidays. — Duncan Ogle-Skan

It is intriguing that you view tax exclusively as a way of smoothing the economic cycle. That is hardly the most important role of government. Most people expect their taxes to pay for public services, too. But we can build on your proposal by insisting that tax be levied in time rather than money. Citizens could be obliged to work two days a week as a teacher, police officer or parliamentary private secretary, and, as you suggest, economic fluctuations could be smoothed out by expanding or reducing this obligation. There is the question of efficiency: a partner at a corporate law firm could easily pay enough tax to hire two or three teachers, but if “taxed” in kind she could only contribute the labour of a part-time teacher. Nor would she have the experience or training of a teaching specialist. On the other hand, public-sector and private-sector workers would be the same people, which might at least foster mutual comprehension. There are worse ideas in the world . . . as we shall see.

What if interest rates were controlled by the net run rate in a never-ending cricket match between the Treasury and the Bank of England? — Sam Mugford

The net run rate measures the speed at which one cricket team has scored, minus the speed at which the opposing team has scored. In a never-ending game we could take the net run rate across the last 10 innings. (If we average over a longer period the NRR would be slower to change; a shorter period gives more fluctuation.) Central bank rates influence the everyday interest that banks charge borrowers and pay to savers. They help to prevent both inflation and recessions by fine-tuning economic activity, making it more attractive to spend money or to save it. If official interest rates are set by a cricket match rather than a committee of experts, it seems less likely that they will perform this role. Maybe the economic cycle will be wilder. Then again, I had assumed that, given this set-up, interest rates would randomly fluctuate around an average of zero. When I tested this assumption with an economist at the Bank of England, they saw the situation differently: surely if the bank wished to raise interest rates they would recruit some professional cricketers?

What if Trump/Musk fires Jay Powell and makes DogeCoin the official currency of the US? — MJFW

What if Bitcoin actually got adopted as the only way of paying for coffee? — Moonlight Hanger

Bitcoin and DogeCoin have been amazing investments. (This is hindsight, and very much not financial advice.) Bitcoin has risen in price from a few cents, to a few dollars, to hundreds of dollars, to tens of thousands of dollars. One DogeCoin has risen from fractions of a cent to — in the wake of the election — more than 30 cents. All these statements were true when I typed them; whether they are true as you read them is quite another thing, because Bitcoin and DogeCoin have been absurdly volatile. This poses a problem for anyone who fancies using a cryptocurrency as, um, currency. A fundamental feature of any currency is that its value needs to be stable. Inflation of 10 per cent is manageable: annoying but not confusing. Inflation of several hundred per cent is bewildering. So, for that matter, is the dramatic deflation implied by the rising price of Bitcoin and DogeCoin relative to everything else.

If both your salary and the coffee were denominated in DogeCoin, it would be very difficult to figure out what the real price of anything actually was. You’d find yourself referring back to something else in an attempt to understand where you stood. What might provide this reference point? When official currencies have been unstable people have tended to use easily identifiable commodities as the standard of value, such as salt, cigarettes or coffee. This isn’t barter as such, but an attempt to find a firm mooring in a tempestuous sea of churning prices. Instead of salt or coffee, the dollar itself might remain an attractive standard . . . if it continues to exist. There are countries in the world where the dollar is not the official currency, but it is the unofficial standard of value. In the world you envisage, perhaps the US will become one of them.

A “Hasbro Top-Hat” conference establishes Monopoly money as the new international monetary standard with numerous national currencies pegged. “Black hat guy” is now the world’s banker . . . — Alex Ray

Would Monopoly money be a better currency than DogeCoin? Unclear. Recall that what we really want from a currency is stability, but Monopoly money is potentially subject to inflation or deflation as money enters or leaves the game. Most of the action in Monopoly is neither inflationary nor deflationary: buying property drains money from the game in the short term, but there is only a fixed quantity of property to buy, so that’s a temporary matter. Paying rent to other players just moves money around the board. But there are ways in which money can be permanently added to or drained from the game, mostly through the Tax squares, paying a fine to leave Jail and of course by passing Go.

Board-game enthusiast Malcolm Wardlaw, building on calculations by Truman Collins, reckons that every roll of the dice can be expected to add $28-$30 to the game. Given that each player starts with $1,500, this means that the money supply would double after about 50 rolls per player, roughly the duration of a game. This must surely be a contender for the most hyperinflationary economy in history, as even Hungary’s infamous postwar hyperinflation only saw prices doubling every 15 hours. (Monopoly games do not last 15 hours — it just feels that way.) As for a world in which DogeCoin becomes the official currency of Monopoly, with interest rates set by a cricket match, I may need some time to think through the implications.

With apologies to Randall Munroe.

Written for and first published in the Financial Times on 20 December 2024.

Loyal readers might enjoy the book that started it all, The Undercover Economist.

I’ve set up a storefront on Bookshop in the United States and the United Kingdom. Links to Bookshop and Amazon may generate referral fees.

Cautionary Tales – “Captain Kirk forgot to put the machine on stun.”

This episode is released exclusively on Pushkin+. Episodes are released on the main feed each Friday.

Lying on the cold metal table, Voyne Ray Cox knew the drill. This was his ninth round of cancer treatment – which is why he was certain that what happened next couldn’t be right. He heard a sizzling sound and saw a blue flash. And then – agony. It was like someone had thrust a hot skewer through his shoulder. He cried out in pain, but the operator was down the corridor and she couldn’t hear him. She blasted him again and again with the red-hot radiation beam.

Ray wasn’t the first patient to be burned by the Therac-25 therapy machine, and he wouldn’t be the last. Its dual-purpose design, controlled by a software programme, was supposed to offer hospitals more bang for their buck. But as patient after scorched patient suffered ulcerated skin and yawning lesions, it should have been clear that something was horribly wrong. Why did it take so long for anyone to put this awful puzzle together?

[Apple] [Spotify] [Stitcher]

Further reading

Nancy G. Leveson and Clark S Turner “An Investigation of the Therac-25 Accidents” Computer 1993

Nancy Leveson “Medical Devices: The Therac-25” in Nancy Leveson Software: System Safety and Computers 1995.

Steven M. Casey Set Phasers On Stun

Supplementary sources include

Charles Huff “Therac-25 Case Narrative” Online Ethics Center 2003 and Adam Fabio “Killed By a Machine” Hackaday 26 October 2015

Helen Nissenbaum. 1994. Computing and accountability. Commun. ACM 37, 1 (Jan. 1994), 72–80.

“Lethal Doses Radiation That Kills” The Plain Dealer, Cleveland 16 December 1992

James Reason Human Error

And

Tom Standage 1843 Magazine “What we can learn from the world’s first computer bug” 1843 Magazine 4th Sep 2019

Cautionary Tales – Cleared For Take-Off? (Tenerife Air Disaster 1)

“Evacuate the airport, we’ve planted bombs,” a terrorist tells the telephone operator at the airport in Gran Canaria, in 1977. By the end of that day, 583 people will have lost their lives – but not to a bomb explosion.

The planes are diverted to the neighboring island of Tenerife. Loaded with passengers, they’re forced to sit on the hot tarmac for hours. Meanwhile, the flight crews rely on air traffic control to keep them updated.

Two Boeing 747s are waiting for thick fog to lift so that they can begin the journey home; they’re anxious to receive clearance to take off. One of them has just taken on a hefty 15,000 gallons of fuel. What unfolds next is the most deadly aviation accident in history.

This episode was previously released on Pushkin+

[Apple] [Spotify] [Stitcher]

Further reading

Collision on Tenerife: The How and Why of the World’s Worst Aviation Disaster is a comprehensive account by author Jon Ziomek and Caroline Hopkins, one of the Pan Am survivors. Fellow survivor David Alexander’s book is called Never Wait For The Fire Truck.

We drew on a range of official reports into the accident, including those conducted by the Airline Pilots Association, the Netherlands Aviation Safety Board, Spain’s Subsecretaria de Aviacion Civil, and the Armed Forces Institute of Pathology. The websites Project Tenerife and Peter’s Tenerife Crash Page contain further useful resources, along with reportage in outlets such as Salon, the Los Angeles Times and the Daytona Beach News-Journal.

For more on the Moses Illusion, see From Words to Meaning: A Semantic Illusion and A case study of anomaly detection: Shallow semantic processing and cohesion establishment. For attempts to avoid the Moses Illusion in air communications, see A Guide to Phraseology for General Aviation Pilots in Europe.

For more on the fight, flight and freeze response, see Walter B. Cannon and the Invisible Rays, The Effects of Acute Stress on Core Executive Functions, Why People ‘Freeze’ in an Emergency,  Freeze for action: neurobiological mechanisms in animal and human freezing, and Fear and the Defense Cascade.Collision on Tenerife: The How and Why of the World’s Worst Aviation Disaster is a comprehensive account by author Jon Ziomek and Caroline Hopkins, one of the Pan Am survivors. Fellow survivor David Alexander’s book is called Never Wait For The Fire Truck.

We drew on a range of official reports into the accident, including those conducted by the Airline Pilots Association, the Netherlands Aviation Safety Board, Spain’s Subsecretaria de Aviacion Civil, and the Armed Forces Institute of Pathology. The websites Project Tenerife and Peter’s Tenerife Crash Page contain further useful resources, along with reportage in outlets such as Salon, the Los Angeles Times and the Daytona Beach News-Journal.

For more on the Moses Illusion, see From Words to Meaning: A Semantic Illusion and A case study of anomaly detection: Shallow semantic processing and cohesion establishment. For attempts to avoid the Moses Illusion in air communications, see A Guide to Phraseology for General Aviation Pilots in Europe.

For more on the fight, flight and freeze response, see Walter B. Cannon and the Invisible Rays, The Effects of Acute Stress on Core Executive Functions, Why People ‘Freeze’ in an Emergency,  Freeze for action: neurobiological mechanisms in animal and human freezing, and Fear and the Defense Cascade.

What vaccine hesitancy teaches us about politics

Robert F Kennedy Jr is a man best known for his years of tireless work undermining public confidence in vaccines, and repeating long-debunked claims about their health risks. The likelihood that he will take charge of all US healthcare policy is a bracing prospect. Until an arsonist is put in charge of a fire department, it will be hard to find a more fitting symbol of our age. 

Vaccines are entangled in politics in a way that most medicine is not. You can see that most obviously in the widespread reluctance among Republicans to vaccinate themselves against Covid-19, while Democrats enthusiastically embraced the vaccine. Flu vaccinations are now much more popular with Americans than Covid vaccine boosters, because a Covid booster has become a political signifier in a way that the flu vaccine has not.

This isn’t the first time such a thing has happened. The HPV vaccine — which protects against the sexually transmitted human papilloma virus, and thus against cervical cancer — became politically controversial when introduced to the US in 2006. This was partly because HPV is a very common infection and, therefore, the vaccine would ideally be given to people too young to have contracted HPV by having sex. The prospect of 11-year-old girls being vaccinated in anticipation of becoming sexually active made some parents uneasy. Political entrepreneurs were quick to express a view, and HPV vaccination became a cultural issue rather than a medical one.

Vaccine scepticism is, in fact, older than vaccination itself. It began with opposition to variolation, the deliberate infection of people with a controlled dose of smallpox in order to confer immunity. Variolation worked but it was dangerous. In the minds of colonial Americans, the idea was hardly burnished by the fact that it came to them from enslaved Africans. The preacher Cotton Mather learnt about variolation from his own slave, Onesimus, and advocated the practice in colonial Boston in 1721. Someone tossed a bomb through the window of Mather’s home with the note, “Mather, you dog. Damn you, I’ll inoculate you with this.” The bomb failed to explode.

Later, vaccination with cowpox prevented smallpox, but that required rubbing pus from cows into cuts in humans. That was less dangerous but neither risk-free nor particularly tempting. Modern vaccines are vastly safer. But then, they ought to be. Unlike most medicines, vaccines are given to people who aren’t ill and require no treatment. The bar for safety and effectiveness is rightly set high.

Nevertheless, many people remain reluctant. So what to do? The first principle must be to avoid deepening the polarisation around vaccines. Easy as it is to mock or belittle people who seem to reject “the science”, it’s counterproductive. The very fact that so many people will go to their doctor for a flu jab while turning down a Covid booster suggests that the “anti-vaxxer” label is not helpful. Many people are suspicious of particular vaccines, but few shun vaccines in general.

Second, the mainstream media need to do better, perhaps by taking their own health and science reporters more seriously. Time and again, media outlets who should know better have amplified scare stories about vaccines. In 2005, Rolling Stone and Salon jointly published a long essay about mercury in vaccines, written by none other than Robert F Kennedy Jr himself. After repeatedly publishing corrections, Salon decided “the best reader service is to delete the piece entirely”, but not until 2011. For all the concern about misinformation circulating on Facebook or WhatsApp, many of the most damaging myths about vaccine harms have been repeated by establishment media sources. 

Third, we need to get the basics right. That means minimising any financial and logistical obstacles that might trip people up on the journey to vaccination. Behavioural scientists have long known that trivial-seeming barriers can loom large, especially when faced with the prospect of hassle right now and benefits much later. It should be easy and cheap — arguably free — to get the standard vaccines. 

And getting the basics right also means reaching out to people who are sitting on the fence. There are always people who will not budge on the topic of vaccination, but there is also a larger group who may delay on the basis of vaguely recalled rumours. Given time and training, healthcare professionals can listen to people’s concerns and a respectful and well-informed conversation is often enough to persuade people to opt for vaccines. 

The stakes here are high. Vaccines save lives, and vaccine hesitancy can kill. Japan and the UK both suffered bouts of concern about the safety of the pertussis vaccine in the late 1970s, but when immunisation rates collapsed, 41 people died from the disease in Japan and 70 in the UK. 

There is plenty of reason for hope. The latest vaccines are better than they have ever been, and the performance of Operation Warp Speed, the signature achievement of the first Trump presidency, reminds us that we can develop, test and roll out new, life-saving vaccines with astonishing speed.

This is a time, then, for treating people as individuals rather than as members of a tribe, for more robust, accurate journalism from the mass media and for respectful conversations with people who disagree. True for vaccine communication, and true for life. A fitting symbol of our age, indeed.

Written for and first published in the Financial Times on 29 November 2024.

Loyal readers might enjoy the book that started it all, The Undercover Economist.

I’ve set up a storefront on Bookshop in the United States and the United Kingdom. Links to Bookshop and Amazon may generate referral fees.

Cautionary Tales – Do NOT Pass Go! (Classic)

Cautionary Tales returns with brand new episodes on January 10th.

Lizzie J. Magie (played by Helena Bonham Carter) should be celebrated as the inventor of what would become Monopoly. But, even though she had a patent, her role in creating the smash hit board game was cynically ignored.

Discrimination has marred the careers of many inventors and excluded others from the innovation economy entirely. Could crediting forgotten figures such as Lizzie Magie help change that?

[Apple] [Spotify] [Stitcher]

Further reading

The essential book on the secret history of Monopoly is Mary Pilon’s The Monopolists, supplemented by Christopher Ketcham’s article “Monopoly is Theft” and Mary Pilon’s feature in Smithsonian magazine.

Lisa Cook’s articles include “Unequal Opportunity: The Innovation Gap in Pink and Black,” in Wisnioski, Hintz, and Stettler Kleine, eds., Does America Need More Innovators? ,  MIT Press, 2019; “Overcoming Discrimination by Consumers during the Age of Segregation: The Example of Garrett Morgan.” The Business History Review, vol. 86, no. 2, 2012; and Lisa Cook, 2014. “Violence and economic activity: evidence from African American patents, 1870–1940,” Journal of Economic Growth, Springer, vol. 19(2), pages 221-257, June.

For more on Raj Chetty and the team at Opportunity Insights see Alex Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, John van Reenen “Who Becomes an Inventor in America? The Importance of Exposure to Innovation” and “American Inventors” The Economist 4th December 2017.

High growth doesn’t tell the story of the US economy

Bill Clinton’s election strategist James Carville wanted his 1992 presidential campaign to focus on three simple messages. But one of them has transcended its original context: “It’s the economy, stupid.”

What then to make of the decisive swing towards Donald Trump against a backdrop of low unemployment, falling inflation and economic growth rates most of the rich world would envy? Do voters no longer care about economic performance? Or were they misinformed about how strong the US economy really is under Joe Biden? Or is there another explanation for why the Democrats presided over strong growth, yet lost?

Let’s take these possibilities in turn. Many people are so tribal in their political loyalties that their satisfaction with the economy depends almost entirely on who is in charge. You can see this in the sharp swings in sentiment whenever the presidency changes parties. For many years, it has been the case that when a Democrat is in the White House, registered Democrats are much more confident about the economy than registered Republicans. When a Republican is in charge, that pattern reverses.

The scale of these politically inflected shifts in sentiment is as large, perhaps larger, as that in response to actual economic events, such as the 2008 financial crisis, or the Covid-19-related contraction. In other words, when you ask people how confident they feel about the economy, they actually tell you how confident they feel about the president.

But it would be wrong to conclude that the actual performance of the economy simply does not matter to voters. For one thing, voters tell pollsters it matters very much indeed. In October, Gallup found that 52 per cent of respondents rated the economy as an “extremely important” influence on their vote for president. This is the highest percentage since 2008 and the highest of any issue this election.

This suggests a puzzle. Americans voted decisively for change, yet most headline indicators suggest the US economy was doing well. Were the voters just misinformed?

The simplest metric for economic performance is real GDP growth, on which measure the US performance has been enviable. The US grew more than 10 per cent between the end of 2019 and the second quarter of 2024. The best of the rest in the G7, Italy and Canada, grew about half as much. The UK grew less than 3 per cent. Germany didn’t grow at all.

Or look at unemployment: the US unemployment rate fell to just 3.4 per cent at moments in 2023, the lowest level since the 1960s. Now it is a little over 4 per cent, still better than at any moment during the 16 years in which George W Bush or Barack Obama were in charge. Both were comfortably re-elected. If US growth is the envy of the developed world, even after adjusting for inflation, and unemployment is close to record lows, what sort of a fool would vote for change on economic grounds?

Perhaps it is the commentators who have been the fools. Look beyond the standard headline indicators and there are plenty of signs of economic stress. Jason Furman, who was a senior economic adviser to the Obama administration, has pointed to several.

There’s the prime-age employment rate, which is the proportion of people aged between 25 and 54 who are employed. This indicator shows how many people are engaged with the labour market and it falls if people give up looking for a job, are too ill to work, or simply feel they have better things to do with their time than work for money. In the US, this rate has barely recovered to pre-pandemic levels. In the supposedly struggling euro area, it’s significantly up. Low unemployment rate notwithstanding, perhaps the US economy has struggled to satisfy the people most likely to feel they should have a job?

And while wages have grown faster than inflation, the trend has been much less positive since 2019 than it was in the years before. Real median household incomes have fallen since 2019, and the poverty rate has risen.

The FT’s Alphaville column has also spotlighted the soft underbelly of the US economy. They point out that while wages have, on average, grown faster than inflation, that may not be true for lower-income households. We’ve seen plenty of signs of “cheapflation”, a tendency of cheaper products to increase in price more than expensive varieties of the same good. The cumulative effect has not been small, and poorer households are almost certainly more vulnerable.

The point of all this? The economy is a complicated system and just because some things are going well for some people does not mean that everything is going well for everyone. And, in particular, not for swing voters on the issues that matter most to them.

Defenders of President Biden’s administration might reasonably point out that he has done his best to fix what weaknesses the US economy has, and even more reasonably point out that Trump’s medicine of mass deportations and ubiquitous tariffs is more likely to harm the patient than heal. Fine. But if the question is “why didn’t American voters understand that the economy was doing brilliantly?”, the question itself is the problem.

The economy has many facets and a strong economy for some does not mean a strong economy for everyone. With that in mind, it’s still the economy, stupid.

Written for and first published in the Financial Times on 22 November 2024.

Loyal readers might enjoy the book that started it all, The Undercover Economist.

I’ve set up a storefront on Bookshop in the United States and the United Kingdom. Links to Bookshop and Amazon may generate referral fees.

Cautionary Tales – Demonising Dungeons and Dragons (Classic)

When James Dallas Egbert III was reported missing from his college dorm in 1979, one of America’s most flamboyant private detectives was summoned to solve the case. “Dallas” faced the same problems as many teenagers, but P.I. William Dear stoked fears that he might have fallen under the evil spell of a mysterious and sinister game: Dungeons & Dragons…

I’ll return with brand new episodes of Cautionary Tales on January 10th. In the meantime, Merry Christmas from the Cautionary Tales team.

[Apple] [Spotify] [Stitcher]

Further reading

David Ewalt’s Of Dice and Men is a fun and accessible history of Dungeons & Dragons. Jon Peterson’s Playing at the World is a more scholarly and hugely detailed treatment of the same material. Both contain useful accounts of Dallas Egbert’s disappearance.

Another important source – including for most of the dialogue in this episode – is William Dear’s vivid description of the case, The Dungeon Master.

Contemporary media reports were useful. “Tunnels are Searched for Missing Student” (New York Times, 8 Sep 1979), “A Brilliant Student’s Troubled Life and Early Death” (New York Times, 25 Aug 1980), and Carla Hall’s “Into the Dragon’s Lair” (Washington Post 28 Nov 1984).

The American Hysteria Podcast “Satanic Panic: Part One” offers another account of the case.

Why are governments so bad at problem solving?

The democratic world is stuck in a self-destructive, self-reinforcing loop: unforced policy errors lead to desperate gambles both by politicians and voters, leading to yet more unforced policy errors. I think it’s safe to say that there is room for improvement. But what might a better path look like?

It sometimes pays to look for a very different perspective, and I’ve found one in an “abbreviated and extemporaneous” lecture given in 1971 to the American Psychological Association, unpublished for many years, and yet even today worth serious attention. That lecture was titled “Methods for the Experimenting Society” and it was given by an academic, Donald T Campbell. It’s partly a manifesto arguing for the use of more rigorous randomised trials in evaluating public policy, but it’s much more than that.

Campbell begins: “The experimenting society will be one which will vigorously try out proposed solutions to recurrent problems, which will make hard-headed and multidimensional evaluations of the outcomes, and which will move on to try other alternatives when evaluation shows one reform to have been ineffective or harmful. We do not have such a society today.”

There’s a lot to explore there. First, that there are some “recurrent” problems that never seem to go away, and yet we should be energetically trying solutions. Campbell calls for a dynamic, can-do attitude, yet recognises that some problems are stubborn.

Second, that idea of “hard-headed and multidimensional evaluations”. The phrase suggests that we need serious evidence of success, not just good vibes or empty boasts, but also that rigour shouldn’t mean a blinkered narrowness. Success can come in many forms.

And third, Campbell takes it for granted that many reforms simply won’t work, and we should not hesitate to discard them and try again. Remember, we’re not dealing with the easy stuff here, we’re dealing with the “recurrent problems”. If they were easy to solve they would have been solved already, so we need to be nimble, not dogmatic.

Campbell was a hugely influential thinker in policy evaluation. His name lives on in the Campbell Collaboration, which assembles evidence in social policy, and also in Campbell’s Law, which holds “The more any quantitative social indicator is used for social decision making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to measure.” When sensible metrics become high-stakes targets, those metrics crack under pressure.

To a certain kind of person, there is something very appealing about the idea of technocrats running randomised trials to discover the best way to run schools or prisons or traffic calming. Campbell was definitely that kind of person, as am I. But Campbell understood that his utopia, his “experimenting society”, had to embody something more fundamental than that.

He listed some of the values he had in mind. An experimenting society had to be active, always looking for improvements and practical solutions. It had to be honest, willing to criticise itself and face facts. It’s striking how different those virtues are from the fearful and polarised habits of today. Populists are temperamentally inclined to dismiss expertise, and Donald Trump, in particular, is unrivalled in his capacity to deny the most straightforward truths about the world.

But neither the Democrats in the US nor the Labour government in the UK have been paragons of open-minded dynamism. The centre left suffer from a brittle arrogance, simultaneously convinced of their superiority yet fearful of attack. That was on display in the Democratic party’s reluctance to challenge a fading Joe Biden until the last possible moment, and their refusal to run a primary process to test out possible successors. It is also visible in Labour’s timid policy offerings: no serious attempt to find a closer relationship with the EU, and a promise to raise none of the major taxes despite a desperate need for revenue. If they thought the status quo was so terrible, why make such a performance of maintaining it?

One can sympathise. We do not seem to be living in an age that rewards humility, an honest admission of uncertainty or a willingness to change course. But we won’t know for certain until a serious politician gives it a try.

It’s natural to advocate an experimental approach to policy on the grounds of effectiveness: good policy experiments produce results, telling us what works and what doesn’t and allowing us to get better outcomes for less effort. Children learn more, criminals go straight, new drugs cure old diseases.

Results matter, but they are not the only reason to aim for an experimenting society. Such a society values curiosity, the childlike sense that the world is full of mysteries to be solved. It values humility, the recognition that nobody has all the answers and that others may know more than we do. It values practical action, the drive to get things done and to solve problems.

In countries gripped by anger and frozen by polarisation, there is not much room for the curious, humble, practical problem solving of the experimenting society. Yet somehow the vicious circle must be broken. “We do not have such a society today,” says Campbell. There is always tomorrow.

Written for and first published in the Financial Times on 15 November 2024.

Loyal readers might enjoy the book that started it all, The Undercover Economist.

I’ve set up a storefront on Bookshop in the United States and the United Kingdom. Links to Bookshop and Amazon may generate referral fees.