Tim Harford's Blog, page 38

Notes on a statistical scandal

Even a spreadsheet can become a victim of its own success. Just ask the World Bank’s Doing Business report. While many worthy publications from the World Bank are never downloaded, Doing Business has been a smash hit for years. No longer. Amid an ugly scandal about data manipulation that has left the head of the IMF, Kristalina Georgieva, fighting for her career, Doing Business has been cancelled.

The power struggle at the top of the fund involves: a three-way tussle for influence between the US, Europe and China; rivalry between Georgieva, former chief executive at the World Bank, and the current, Trump-nominated bank president David Malpass; and domestic US politics. (Democrats have long disliked the Doing Business report’s low-regulation tone.)

The accusation is that in 2017 the World Bank’s leadership, including Georgieva, pressured the Doing Business team to improve China’s ranking in order to keep the Chinese government happy. The case for the defence is that Georgieva’s team were merely double-checking a sensitive number, that China’s ranking barely moved (from 85th to 78th), and anyway China is now ranked far better (25th) than when Georgieva was at the bank. The fight is as fascinating as it is unedifying.

Yet I see the demise of Doing Business as a statistical cautionary tale, and we’re in danger of learning the wrong lessons.

I should declare a personal interest here. In 2004 and 2005, I worked at the World Bank, sharing office space with the team who compiled the first Doing Business reports. They were my colleagues and, in some cases, my friends.

The data they collected aimed to shine a light on an important problem in development: entrepreneurs who struggled with basic processes such as registering a new business, enforcing a contract or clearing customs checks. The very first Doing Business report begins with the tale of Teuku, a hypothetical entrepreneur in Jakarta whose plans to open a textile factory are delayed for nearly six months as he deals with endless bureaucratic steps. If Teuku were Australian, it would have taken two days.

Doing Business tried to track systematically the time and expense required to start a business, hire or fire workers, or get a court to enforce a contract. These and other measures were based “on assessments of laws and regulations, with input from and verification by local experts who deal with practical situations of the type covered in the report”.

The team in Washington DC would go back and forth with local lawyers and accountants, eventually assembling a step-by-step description of each process in each country.

There is a great deal to admire in this effort. Everyone knows that red tape can be a problem, but Doing Business could be more specific about the obstacles and how to remove them than a survey which identified general problems with corruption or a “poor business environment”.

However, there were complaints almost immediately. Some were self-interested: no country wanted a bad ranking. More interesting is the objection that the project always talked about the ways in which government is an obstacle rather than a support to economic activity.

And there are more technical objections too: for example, because Doing Business focuses on formal rules, it could miss the ways in which local entrepreneurs and officials might bend or bypass those rules.

A recent review of the project by independent experts called for substantial changes to the methodology and “a major overhaul of the project”. But the same external panel also called Doing Business “a unique source of comparable global data . . . potentially of great value”.

I agree. It may be imperfect but that is true of many social and economic statistics. It is transparent, useful and it refreshes the parts that more conventional economic indicators cannot reach.

This newspaper recently celebrated the demise of the Doing Business indicators, complaining that countries were “expressly changing policies to score better”. That is a strange objection. Unless the indicators are valueless, when countries try to score better that is a feature, not a bug.

Nor are the claims of political interference a good reason to abandon a statistic. Statistics should always be, and be seen to be, independent of meddling. But I cannot recall anyone calling for countries to stop measuring inflation or deficits because the numbers coming out of Argentina and Greece made no sense. If numbers are worth manipulating, they may also be worth defending.

I called my old boss, Michael Klein, long retired from his role as World Bank vice-president, and one of the creators of the Doing Business project. He remains convinced that the data are useful and transparent: “GDP data are not any better or more easily replicated.”

But Klein has one regret: the original decision to publish an overall ranking of which countries were the best and the worst in the world for doing business. Such aggregate rankings make little sense, but they are ubiquitous because they are clickbait.

The Doing Business aggregate ranking was no exception. Without it, the report would never have received so much attention. But without the ranking, it is doubtful anyone would have cared enough to try to manipulate the data.

This is why I fear Doing Business was a victim of its own success. There are two types of statistics in the world: the ones that politicians ignore and the ones that politicians want to manipulate. The demands for manipulation will never go away, but the answer is not to cancel the gathering of statistics. It is to defend the independence of the statisticians.

Written for and first published in the Financial Times on 22 October 2021.

The paperback of “The Next 50 Things That Made The Modern Economy” is now out in the UK.

“Endlessly insightful and full of surprises — exactly what you would expect from Tim Harford.”- Bill Bryson

“Witty, informative and endlessly entertaining, this is popular economics at its most engaging.”- The Daily Mail

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Interesting books arriving on my pile

The books I’m actually reading this week are:

Mastermind by Maria Konnikova – drawing on the life of Arthur Conan Doyle and the adventures of Sherlock Holmes as inspiration to riff on creativity, rationality and memory. A pleasure to read and full of good ideas.

Rationality: What it is, Why it seems scarce, Why it matters by Steven Pinker. Lots of ideas in logic, behavioural science and statistics, explained with wit and clarity. It’s worth the cover price just to read his explanation of how a best-fit line works.

What else? I’ve enjoyed watching Climate Change by Numbers (two weeks left to watch), although goodness me it takes a long time to say anything on the telly, doesn’t it? Still, my friends Hannah Fry and David Spiegelhalter are in fine form and I learned some interesting things about the history of temperature measurement.

Also on the pile:

Pete Dyson and Rory Sutherland, Transport for Humans – fizzing with counterintuitions about transport. So much fun.

An Answer For Everything: 200 Infographics To Explain the World – there seem to be a lot of these books about these days, but this looks vivid and an interesting choice of topics. I will try to take a proper look…

Life is Simple by Johnjoe McFadden – an intellectual history of Occam’s Razor? Sounds good to me, and getting good reviews, but alas I have not yet read it.

The paperback of “How To Make The World Add Up” is now out. US title: “The Data Detective”.

“One of the most wonderful collections of stories that I have read in a long time… fascinating.”- Steve Levitt (Freakonomics)

“If you aren’t in love with stats before reading this book, you will be by the time you’re done.”- Caroline Criado Perez (Invisible Women)

I’ve set up a storefront on Bookshop in the United States and the United Kingdom – have a look and see all my recommendations; Bookshop is set up to support local independent retailers. Links to Bookshop and Amazon may generate referral fees.

Christmas? I had it wrapped up weeks ago

Christmas is coming early this year! Christmas shopping is anyway — or such is my plan. I’ve seen too many queues and empty shelves over the past couple of years to leave things to chance. (Supply chains, people!) I’ve been making a list, I’ve been checking it twice, but most of it was ticked off by Halloween.

When December comes, if you’re struggling to get hold of tasteful Christmas crackers, or Terry’s Chocolate Orange, well — sorry, suckers. If you snooze, you lose. I got them first. I don’t feel too much shame in admitting to this, because while the rush to buy toilet paper and petrol has caused nothing but trouble, early Christmas shopping should ease the burden on strained logistics.

Retailers are encouraging us to spend early — although they would, wouldn’t they? Only 400 shopping days before Christmas 2022 and all that.

There is precedent here: Big Tinsel has actively campaigned for a longer Christmas season before. In 1939, the US Retail Dry Goods Association realised that Thanksgiving would fall late, on November 30. This was perceived to be a problem, since hawking Christmas gifts before Thanksgiving was thought to be crass consumerism. (When the American shopper accuses you of crass consumerism, you know you’ve crossed a line.)

The RDGA duly lobbied President Roosevelt to move Thanksgiving a week earlier in November. He did, and the change eventually stuck, even though at the time his “Franksgiving” decree was perceived as being high-handed. One prominent political opponent even suggested it evoked “the omnipotence of a Hitler”.

Having a longer Christmas shopping season must make certain logistical matters easier. But would it — did it? — actually boost retail spending?

One view of the ever-earlier appearance of tinsel and jingle bells in the shops is that retailers are playing a zero-sum game with each other to attract customers. A family might spend a fixed £250 on Christmas gifts, food, drink and decorations regardless of whether they start in September or on Christmas Eve. All retailers are doing with their early festivities is to scramble to get a slice of that £250 before it is spent elsewhere.

The alternative view is that we shoppers are more malleable than that, and every day in which we are drenched in the Christmas spirit tempts us to spend more. To figure out which view is true, we need to look at the data.

In 2005, the economist Emek Basker did just that. She studied the US, where Thanksgiving now ranges between November 22 and 28, leaving as few as 26 or as many as 32 shopping days between Thanksgiving and Christmas. She found a clear pattern: Americans do indeed spend more when Thanksgiving falls early. The sums aren’t trivial: about $10 per person per day in today’s terms. Robert Urbatsch, a political scientist, used a similar approach to examine the jobs market and found that longer Christmas seasons lead to higher levels of employment.

Professor Basker estimated total holiday spending by comparing all spending in November and December vs all spending in September and October; the difference was about $300 per person in today’s money. Using a slightly different method, the author of Scroogenomics Joel Waldfogel has produced broadly similar estimates of the Christmas bump in sales.

The message is clear: retailers don’t just put up decorations to steal Christmas sales from each other, they are also boosting the total amount we impressionable customers spend.

Parkinson’s Law applies to spending as much as to any other task; Christmas expands so as to fill the time available for its completion.

Should we worry about this? I do. I find Christmas wonderful, but Christmas consumerism is not. The data clearly show that a good slice of our Christmas spending is shallow and wasteful. Most of us intuitively know this. Starting early might make Christmas more expensive and, therefore, more wasteful, but it is hard to see how it would make it more fun.

But as a lover both of Christmas and of ticking off lists, I am generally ahead of even the boldest retailers. This year’s supply chain worries have simply given me an excuse to push early preparation to a ludicrous extreme. Both the data and my own experience warn me that just because I start early doesn’t mean I’ll finish early: there is a risk that I simply spiral round, spending ever more on gifts that are likely to be increasingly ill-judged.

Nevertheless, this year my course is set. It will be an interesting experiment. My hope is that the early start has given me more time to be thoughtful and more time to find gifts that people might actually want. I hope to write some proper Christmas letters, catch up with friends not hugged since 2019 and perhaps even play a few board games.

My plan is that by the time Christmas is in full swing I will be able to focus on Dickensian feats of revelry and wassailing, rather than hurrying around crowded shops. It might work.

Wizzard wished “it could be Christmas every day” but, of course, Christmas doesn’t work like that — it has always presented a challenge of timing. Leave the preparations too late and the result can only be stress and anxiety, but start the partying too early and you’ll be out of seasonal goodwill long before Twelfth Night. Maybe this year I’ll get it right.

Written for and first published in the Financial Times on 5 November 2021.

The paperback of “The Next 50 Things That Made The Modern Economy” is now out in the UK.

“Endlessly insightful and full of surprises — exactly what you would expect from Tim Harford.”- Bill Bryson

“Witty, informative and endlessly entertaining, this is popular economics at its most engaging.”- The Daily Mail

I’ve set up a storefront on Bookshop in the United States and the United Kingdom – have a look and see all my recommendations; Bookshop is set up to support local independent retailers. Links to Bookshop and Amazon may generate referral fees.

Shortage nation: why the UK is braced for a grim Christmas

As I was finishing the first draft of this story, the lights went off. The power to my house had failed. We checked the fuse box, found some bike lights to serve as torches, and my teenage daughter helped her little brother with his candlelit homework. My wife and I bored our offspring with tales of the power cuts we used to enjoy as children.

There were no macroeconomic forces behind this particular outage — a blown fuse at the substation was fixed within a couple of hours. It was, however, a little too on-brand for modern Britain.

The lights for the whole world’s economy seem to be flickering. Costs of container shipping have increased nearly tenfold since last summer, while major ports face serious congestion. German economists fear a “bottleneck recession” as the manufacturing powerhouse struggles to source raw materials. Car manufacturers have shelved production because they can’t get enough computer chips.

Yet while the wheels of the global economy seem to be coming off, the British economy is being scraped face-first across the economic tarmac. The shortage of truck drivers in many advanced economies is more acute in the UK since 14,000 EU citizens stopped working as lorry drivers between the summer of 2020 and the spring of 2021. Businesses have been warning for months that the Christmas surge in demand, for everything from turkeys to toys to sweets, simply cannot be satisfied.

The UK has suffered a shortage of fuel at petrol stations up and down the country. (It is never a good sign when the politicians call in the army.) While energy prices are rising around the world, Britain is particularly vulnerable to a rise in the price of gas, which also feeds into expensive electricity. About a dozen British energy retailers, supplying more than two million people, have already gone bust. A cold, costly winter is coming.

It wasn’t supposed to be like this. After last year’s pandemic-related shortages of masks and toilet paper and spaghetti subsided, supply chains were supposed to adapt. At first, the numbers suggested that the economy was adjusting — the UK’s second lockdown did far less economic damage than the first. We were getting through this; there was no reason to expect another winter of discontent. (It should be acknowledged that the original, in 1978-79, was rather different: a lorry drivers’ strike, a refuse collectors’ strike and even a gravediggers’ strike filled the front pages and put pressure on James Callaghan’s government. That winter has been a bruise on British politics ever since.)

So why do Britain’s shortages seem worse than ever? Is there anything we can do to ease the problem, in the UK and around the world? And — whisper it — is there a chance that all this chaos might just make us stronger?

In my first attempt to understand what is ­happening, I picked up János Kornai’s 1980 book, Economics of Shortage. Kornai gradually moved from being an ardent communist in postwar Hungary to a clear-eyed critic and analyst of the failings of central planning. He begins by declaring that his book is the first, to his knowledge, to focus exclusively on shortages. Will his work explain the shortage of petrol or carbon dioxide or power tools in 2021? It will not. “My study,” he explains in the text, “is centred on socialist economic systems.”

There is a reason that Kornai does little more than nod to the idea of a shortage in a market economy: they are not supposed to happen. Despite often being characterised as “the study of the allocation of scarce resources”, economics generally has little to say about actual shortages in a market economy.

In a planned economy, shortages result because prices do not move to reflect the forces of supply and demand. In a market economy, however, prices should adjust. If lots of people want petrol and there isn’t enough to go around, the price of petrol will naturally rise until the quantity demanded equals the quantity available.

In the textbooks, a “shortage” doesn’t mean dry pumps or empty shelves: it means that prices spike. They might double or triple. Some will find it impossibly expensive to drive, and others might find their finances ruined because they have no choice but to buy fuel they cannot really afford. But there are no queues; there is always petrol available to those who are willing and able to pay.

For some products and services, prices have indeed spiked. But consumers have so far been insulated from those increases. “Shipping costs have risen,” says Shanella Rajanayagam, a trade economist at HSBC. “But the price of imported goods has only ticked up slightly.”

Quite so. For retail consumers, our experience was not that the price of electricity, toilet paper or petrol doubled. It was that there was no petrol and no toilet paper. Power still flowed, but the electricity retailer who promised to keep it cheap had gone bankrupt.

In 1986, Daniel Kahneman, Jack Knetsch and Richard Thaler published an explanation of why prices do not shift in a crisis: customers hate it when they do. The researchers described simple scenarios to people and listened to their response. A large majority objected to businesses who raised the price of shovels the day after a blizzard, or charged extra for Red Delicious apples that were sold out everywhere else. Kahneman and his colleagues noted that when prices adjusted to balance supply and demand, economists viewed this process as “as natural as water finding its level — and as ethically neutral. The lay public does not share this indifference.”

Businesses know this. Tesco or BP could raise prices to ensure that there was always toilet paper on the shelf and petrol in the pump, but their customers would not thank them. A few days of extra profit are not worth the bad press. They would rather run out. In the long term, prices usually do adjust. Customers who fume at overnight profiteering will tolerate slower shifts in price — and companies cannot afford to misprice products for ever. (Although sometimes it is nearly for ever: the price of a bottle of Coca-Cola was five cents in 1886 and remained so until the late 1950s.)

If markets are allowed to work, then, the shortages will disappear in the long run. But it is time for the obligatory John Maynard Keynes quote: “This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean will be flat again.”

The central eight words of that quotation, from 1923’s A Tract on Monetary Reform, have been as widely quoted as anything he said. The context is often missing: Keynes was complaining about an economics that could study two different steady states, in each of which supply equalled demand, but had nothing to say about the tumultuous journey between them.

For a chirpy, free-market perspective on the whole affair, look no further than the star of a 1958 essay “I, Pencil . . . as Told to Leonard E. Read”.

The pencil, our loquacious narrator, knows it seems unassuming. “Pick me up and look me over. What do you see? Not much meets the eye — there’s some wood, lacquer, the printed labelling, graphite lead, a bit of metal, and an eraser.”

But the pencil is soon in an expansive mood as it describes its “family tree”. Collecting its cedar wood required axes and saws, motors and a railway. Its graphite is from Sri Lanka, mixed with Mississippi clay, sulphuric acid, animal fats and numerous other ingredients. The pencil is nothing short of lyrical on the topic of its ferrule, its eraser (made not of rubber, but rape seed oil, sulphur chloride and an abrasive pinch of Italian pumice), and its magnificent six (six!) coats of lacquer.

The stirring lesson of all this unappreciated complexity? “Leave all creative energies uninhibited . . . Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed.”

The pencil’s autobiography is a vivid account of the complexities of a market economy. But from the perspective of 2021, it is hard to read without thinking about disaster scenarios. What if floods prevent the quarrying of Mississippi clay? What if there is a shortage of pumice? What if all the rape seed oil is bought and bottled by the supermarkets? There are so many ways for the pencil’s fragile-seeming supply chain to snap.

In the late 1700s, the French pencil industry discovered exactly this. Graphite was mined from Borrowdale in the English Lake District and exported to France. (It was valuable enough that miners at Borrowdale were supervised by armed guards as they changed their clothes at the end of a shift, lest they try to smuggle a nugget away.) But the soft, heat-resistant material was useful not only for pencils but for casting cannonballs, and as ­military tensions grew between Britain and France, the British put a stop to the flow of graphite across the channel. C’est la vie.

Read’s pencil was more complex than it appeared. How much more complex still is a car, or a computer, or even a toaster? A few years ago, the artist Thomas Thwaites tried to build a no-frills toaster. The result was an oozing mess that cost about $1,000, took months to assemble and, when it was plugged into mains electricity, caught fire. “I realised that if you started absolutely from scratch, you could easily spend your life making a toaster,” Thwaites told me. Yet thanks to the miracle of the market, the toaster was available from Argos with the proceeds of less than an hour’s minimum-wage labour.

Miracle notwithstanding, the Argos toaster had more than 400 components and subcomponents, with an average cost of less than a penny apiece. If the supply of any one of those components dries up, we’re back to eating bread and butter.

This is not just a hypothetical scenario. The production of cars has been constricted by a lack of basic computer chips. The production of vaccines has been threatened by a lack of giant plastic bags. The production of meat has been jeopardised by a lack of carbon dioxide, a side effect of high natural gas prices.

In each case, the kingdom is being lost for want of a horseshoe nail that few even realised existed. Who knew that vaccines needed special bags, or that carbon dioxide was an essential part of the ­process of turning pigs into pork chops?

The complex world of obscure supply chains is a wonderful curiosity when explained by Leonard E. Read’s pencil. It is less wonderful when the shelves are empty and billions remain unvaccinated. “Have faith that free men and women will respond to the Invisible Hand,” declaims the pencil. Should we?

At 11.38am on January 28 1986, the Space Shuttle Challenger took off from Cape Canaveral in Florida. Seventy-three seconds later, the shuttle broke apart. Seven astronauts died as their cabin crashed into the Atlantic Ocean, and the investigation and recriminations began. The cause of the disaster — as sensationally demonstrated in a televised hearing by the physicist Richard Feynman — was a rubber seal called an O-ring, which had become brittle in unseasonably cold weather. A single failure in a simple component had doomed the mission, and the crew of seven.

The Challenger disaster seems like a tragic one-off. But what if O-ring failures are all around us, not just bringing down spaceships, but causing problems in every aspect of life? The economist Michael Kremer argues that economics should be paying more attention to the way economies work when the whole chain relies on the weakest link.

Reliability costs money, and businesses and their customers will willingly pay for that reliability. But only up to a point. If $1m-worth of production rests on $1,000-worth of computer chips, we should hardly be surprised if the supplier who is being paid $1,000 does not act as if $1m is at stake. When each link of the chain is being outsourced to a different provider, from time to time we will discover that the chain breaks somewhere under the strain.

There are two obvious solutions to this problem. One is to ensure that every link in the chain is made by the same organisation: a single, vertically integrated supplier. The second — far more common in the 21st century — is to ensure more competition at every stage, so that when one link breaks a replacement is at hand. That can work. Indeed, it is the reason why the lights usually stay on and the shelves usually stay well stocked. But if a problem hits a whole industry rather than a single firm, the weak links soon make themselves known.

The general feeling among supply-chain geeks is that while the Christmas rush is sure to cause yet more headaches, the current problems are temporary and somewhat overblown. In March 2020, as Covid-19 spooked shoppers, I spoke to Professor Yossi Sheffi of MIT. He was relaxed. “We are not going to run out of food, so chill,” he told me. He was not wrong. We did not run out of food. We ran out of kettlebells. And civilisations do not collapse because of a shortage of kettlebells.

When I ask Shanella Rajanayagam what surprised her about the current supply-chain strains, she is similarly upbeat. She’d been impressed by how superbly the global economic system is coping given the astonishing range of challenges. “It’s just one thing after another,” she says. “And it’s things beyond Covid-19.”

Global commerce has been strained by a post-lockdown surge in demand from western consumers, flush with cash they have been unable to spend. At the same time, ports have been constricted by Covid-19 restrictions, manufacturing in Vietnam has been held back by a huge outbreak of the Delta variant, truck drivers have been wondering whether the job is worth the hassle and a container ship blocked the Suez Canal for a week. There was a fire in a Japanese chip factory, China closed dozens of coal mines after accidents and safety violations, and months of unfavourable weather have caused a shortage of natural gas. All this has coincided with the pre-Christmas peak in demand for container shipping.

And yet, said Rajanayagam, “supply chains are still resilient. There’s been such a surge in demand for goods, and for the most part it has been provided.”

It is easy to lose sight of that, especially when you can’t buy a tank of petrol. We notice what is missing — but we still have quick and convenient access to a wider range of products than we did 20 years ago. The world trading system has absorbed punch after punch. It’s still standing.

Manufacturers have been moving to a “just-in-time” system of inventory management since the 1950s. To an outsider, “just in time” sounds like cutting things fine, a recipe for chaos. But as Yossi Sheffi explains in The New (Ab)Normal, “just in time” was originally Toyota’s effort to prevent parts shortages by better co-ordinating with suppliers. Smaller inventories were a welcome side effect.

It seems logical to expand those inventories, moving from “just in time” to “just in case”. That is exactly what UK consumers were doing when they all queued to fill up their cars at the same time. In the medium term, larger inventories may be a price worth paying. In the short term, a collective rush to build inventories is disastrous, as manufacturers hoard vital components. But to paraphrase Joseph Heller’s Catch-22, if everyone starts hoarding, then you’d be a damned fool to act any other way.

Governments could take action here and there — for example, to subsidise storage capacity in the energy system, or boost the resilience of the electrical grid. But in many cases, the complexity and the interconnectedness of the supply chains make it hard to see how governments might help.

Perhaps all we can do is to take the pencil’s advice and trust in the invisible hand. With apologies to John Maynard Keynes, at least we can be confident that when the storm is long past, the ocean will be flat again.

But there is one government that will not sit idly by. Instead, it hopes to hoist sails and ensure the maximum possible exposure to the howling economic winds. It is, of course, the government of the UK.

A decade ago, software engineers at Netflix created Chaos Monkey, a system which randomly disables Netflix servers. The idea behind the crazy-sounding scheme was to push Netflix engineers to build more resilient systems. Servers do fail, after all, so it might be best to get some practice in. Having concluded that these random acts of self-sabotage were delivering the desired response, Netflix followed up with Chaos Kong, which simulates a much broader service failure.

Late in 2019, the British people decided that Chaos Kong would make a good prime minister and elected Boris Johnson by a large margin. Johnson has now decided to make a virtue of his own recklessness. After initially claiming that the shortage of truck drivers in the UK was entirely unconnected to Brexit, the government now boasts that the shortage is indeed Brexit-related and was the plan all along. True to the spirit of Chaos Kong, this tough love for the British economy is the only way to get it to shape up.

In preventing the easy recruitment of truck drivers, abattoir workers and care-home staff from the EU, the UK government is actively blocking the most straightforward way to get the economy running smoothly again. (To ensure everyone got the message, Johnson compared immigrants to heroin, complaining that businesses had been able to “mainline low-wage, low-cost immigration”.) The assertion is that if the government deliberately constricts the supply of essential workers, the economy will come out stronger in the long run. Chaos Kong worked for Netflix. Will it work for the UK?

It seems unlikely. In 2018, the government’s independent Migration Advisory Committee ­surveyed the latest evidence on productivity and immigration. A variety of studies using a variety of methods concluded that immigration was a huge boost to productivity. Indeed, the estimates of the benefits were so large that the MAC couldn’t quite believe them.

That is not to say that the market cannot find a way around any shortage. It can. After the British forbade the supply of graphite to the French, Nicholas-Jacques Conté came to the rescue. Conté was a French army officer, balloonist, adventurer — and pencil engineer. He painstakingly developed a way to make pencil leads from a mix of clay with low-grade powdered continental graphite. The prime minister hopes that British businesses will prove just as innovative in response to the government’s self-imposed barriers to foreign labour.

The problem is that these innovations are not always what one might hope. Faced with a shortage of waiters and cooks, some restaurants will use more frozen, pre-cooked food from factory kitchens. The challenge of recruiting abattoir workers and fruit pickers may be met by dramatically raising wages and improving conditions — or by importing food instead. If we can no longer bring the Latvians to Norfolk turkey farms, ­Norfolk turkey farms may have to go to Latvia.

The government’s reasoning is particularly questionable when it comes to truck drivers. Truck drivers are in short supply in most western countries, but particularly so in the UK, which until recently was home to tens of thousands of truck drivers from the EU. Thanks to Covid-19, more than a third of them went home, and thanks to post-Brexit restrictions on immigration, they are unlikely to return. There is no doubt that in the medium term, British truckers will be trained and recruited, probably on substantially improved pay and conditions. But truckers are a small fraction of the workforce, so it is hard to expect much of an effect on pay overall. Meanwhile, how much damage will be done to other businesses in the interim? Can that damage possibly be outweighed by a more prosperous, homegrown trucking industry?

There is one encouraging precedent: US manufacturing in the 1920s. The economic historian Paul David observed that there was a long delay after developing electric motors before they were productively used in manufacturing. Electric motors only fulfilled their potential once production lines were re-engineered, factory buildings redesigned, and workers retrained. This took courage, imagination and about three decades. Electrification caught on in US factories in about 1920 and productivity surged at rates never seen before or since.

What provoked this sudden reorganisation? Perhaps it was just a matter of time. Partly it was enabled by the falling cost and rising availability of power from the electricity grid. But David argued that factory owners rethought their operations once the flow of immigrant workers dried up. More than a million people a year had moved to the US from Europe before the war, but in 1914 this stopped — first because of the war itself, and then because of postwar legislation. Lacking workers, factory owners had to figure out how to get more from less. David concluded that real wages in manufacturing rose sharply along with productivity.

Immigration restrictions alone were not enough; productivity rose because a revolutionary technology lurked in the background. “It was the confluence of these two streams,” wrote David, “that gave the decade of the 1920s its truly extraordinary character.”

Boris Johnson is betting that if he gives the UK economy a shock, something will turn up — just as when you give your television a thump, it might work better. And it might. But Chaos Kong does not seem to have a clear idea of what opportunities might materialise.

It is possible that the result of the chaos will be adaptation, innovation and resilience. But in this case, I am suffering from an acute shortage of optimism.

Written for and first published in the Financial Times on 14 October 2021.

The paperback of “The Next 50 Things That Made The Modern Economy” is now out in the UK – the pencil is one of the stars of the book.

“Endlessly insightful and full of surprises — exactly what you would expect from Tim Harford.”- Bill Bryson

“Witty, informative and endlessly entertaining, this is popular economics at its most engaging.”- The Daily Mail

I’ve set up a storefront on Bookshop in the United States and the United Kingdom – have a look and see all my recommendations; Bookshop is set up to support local independent retailers. Links to Bookshop and Amazon may generate referral fees.

How to make the algorithms serve us, not the other way around

Life is full of difficult decisions. Who should be hired or fired? What grades should students receive in their exams? Should an accused person awaiting trial be released or held in custody?

An increasingly popular alternative is to delegate the decisions to a data-driven algorithm. The hope is that such algorithms might correct our prejudices, our emotional incontinence and our wild inconsistencies. The risk is that the algorithms automate injustice.

So should we use algorithms to make life-changing decisions? Our response to this question has been not to look at the data, but to respond with prejudice, emotional incontinence and wild inconsistency. How very human.

For an example (there are many) of irrational algophobia, see the CNN article “Math is Racist”. For an example (there are many more) of irrational algophilia, see the UK government’s absurd decision last year to allow an algorithm to assign exam grades to students who had never been given the chance to sit the exam.

A better way forward is to look at the data. How are algorithms working in practice and can they be fixed when they fall short? Jens Ludwig and Sendhil Mullainathan of the University of Chicago examine the problem in a forthcoming article for the Journal of Economic Perspectives.

Ludwig and Mullainathan focus on algorithms used in decisions in criminal justice, such as pre-trial release, sentencing and parole. They argue that decisions made by judges are so transparently flawed that there is plenty of room for algorithms to improve matters. Judges have little ability to predict the risk of repeat offending. Their decisions show distinct statistical evidence of racial bias. Judges are also inconsistent, both with their own prior judgments, and with each other. Some judges are tough, others lenient. Sentencing guidelines are an attempt to control the chaos, but what are such guidelines if not a crude algorithm?

Having laid out this catalogue of human failings, Ludwig and Mullainathan drop the other shoe: algorithms also make terrible decisions. Why? Not because they cannot do better — they can — but because when we humans design, procure and deploy algorithms, we’re not really trying. For example, many algorithms produce decisions with a racist or sexist result because they have been trained on data from a racist, sexist world. This is unacceptable, not because the algorithm is worse than what came before it, but because it could so easily do better. Humans do not come equipped with an “equity dial” designed to balance different conceptions of fairness across class, income, gender, ethnicity, disability or any other category. Algorithms do, if we choose to use it. We are often careless about how algorithms are designed, trained or used.

Cathy O’Neil, author of Weapons of Math Destruction, once pointed out to me that in describing an algorithm, I had conflated the risk of reoffending with that of being rearrested. In my defence, so had almost everyone else. It is all too easy to claim the algorithm is doing one thing when in fact it is doing something else, perhaps something both easier and more malign.

We do seem to judge decisions made by humans in a different way from those made by machines. We seem more outraged by biased algorithms than by biased humans, perhaps because we (rightly) expect the algorithm to do better. But that is not the way in which we hold computers to different standards. Recall the famous “trolley problem” in which a decision to divert a runaway railway trolley will save lives overall, but is also an active decision to kill someone who would otherwise have been safe. Researchers have found that people tend to prefer computers that divert the trolley, but forgive humans who remain inactive. Cool utilitarianism is unsettling in a human, but exactly what we want from an algorithm.

What should be done to allow algorithms to realise their potential? First, recognise that they are simply tools, like hammers. At the moment our polarised discussion seems to view the algo-hammer as either a murder weapon or a cure for cancer. It’s neither, but it’s perfectly good for driving in nails.

Second, as Kate Crawford explains in The Atlas of AI, we need to acknowledge there are questions of power and politics in who gets to design the algorithms and who feels the results. To continue the hammer metaphor, a hammer is one thing to a carpenter and quite another to a nail.

Finally, as I argue in my own book, How To Make The World Add Up / The Data Detective, we need to start subjecting algorithms to the same culture of collaborative scrutiny and replication that defines science, and the same requirement to prove effectiveness that we demand from new medicines.

I am convinced that a well-designed algorithm can make fairer decisions about criminal justice, who to invite for a job interview and how support is assigned to vulnerable children. But before we unleash such algorithms, it is only right to expect independent experts to examine their inner workings — and only right to expect proof of effectiveness, for example with a randomised trial. Algorithms, like medicine, can do a lot of good. But before we start dosing each other, let’s check the evidence rather than admiring the pretty label on the bottle.

Written for and first published in the Financial Times on 1 October 2021.

The paperback of “How To Make The World Add Up” is now out. US title: “The Data Detective”.

“One of the most wonderful collections of stories that I have read in a long time… fascinating.”- Steve Levitt (Freakonomics)

“If you aren’t in love with stats before reading this book, you will be by the time you’re done.”- Caroline Criado Perez (Invisible Women)

The best bookshops in the world (and some good books too)

What if you took a “Miss Manners” agony aunt column but set it in an alternate Britain at the end of the Victorian era in which strange supernatural happenings are unfolding with increasing regularity. If a minotaur demanded admission to the Savoy, what is the correct etiquette? A Minotaur At the Savoy is a delightful book by my friend Dave Morris.

I’ve just been alerted to the existence of Chris Blattman’s Why We Fight. Self-recommending; order early, order often.

Fourteen more sleeps until I interview Steven Pinker about his new book Rationality. (Online event)

This Wednesday I’m chairing a conversation between Professor Andrew Pollard, one of the creators of the Oxford-Astrazeneca vaccine, and portrait artist Fran Monks, featuring Dr Helen Salisbury and the director of the History of Science museum Dr Silke Ackerman. It should be a great conversation about the science, art and human side of vaccine trials. (Online event.)

I’ve also been reading Nick Chater’s new and yet-to-be-published The Language Game, which is excellent. If you can’t wait, buy The Mind Is Flat, which will turn your world upside-down in the very best way.

I was tickled by the FT’s list of the world’s best bookshops (including the incomparable Blackwell’s on Broad Street, which never ran out of copies of How To Make The World Add Up).

Dujiangyan, Sichuan

Speaking of good bookshops on Broad Street, we are spoiled in Oxford – Waterstone’s is also excellent and I am particularly well-disposed towards them because they’ve named How To Make The World Add Up one of their books of the year. Thanks!

The paperback of “How To Make The World Add Up” is now out. US title: “The Data Detective”.

“One of the most wonderful collections of stories that I have read in a long time… fascinating.”- Steve Levitt (Freakonomics)

“If you aren’t in love with stats before reading this book, you will be by the time you’re done.”- Caroline Criado Perez (Invisible Women)

I’ve set up a storefront on Bookshop in the United States and the United Kingdom – have a look and see all my recommendations; Bookshop is set up to support local independent retailers. Links to Bookshop and Amazon may generate referral fees.

The Mummy’s Curse

Disturbing the remains of the Egyptian Pharaohs is known to incur a deadly curse, so why did a team of archeologists still risk inciting the wrath of King Tutankhamun by entering his burial chamber? And how many of them met a premature end for their impudence?

Cautionary Tales is written by me, Tim Harford, with Andrew Wright. It is produced by Ryan Dilley and Marilyn Rust.

The sound design and original music is the work of Pascal Wyse. Julia Barton edited the scripts.

Thanks to the team at Pushkin Industries, including Mia Lobel, Jacob Weisberg, Heather Fain, Jon Schnaars, Carly Migliori, Eric Sandler, Emily Rostek, Maggie Taylor, Daniella Lakhan and Maya Koenig.

[Apple] [Spotify] [Stitcher]

Further reading and listening

Roger Luckhurst’s book, The Mummy’s Curse , is the perfect guide to every angle of the tale. Nigel Blundell’s The World’s Greatest Mistakes gives a vivid tabloid-style version, and Snopes described and then fact-checked the tale of the Unlucky Mummy. Skeptoid covers and debunks various explanations for the curse.

The Mesmeromania incident is covered in detail by Christopher Turner for Cabinet Magazine. Shankar Vedantam and Bill Mesler set it in wider context in their book Useful Delusions.

Charle’s Duhigg’s story about Target and the pregnant teenager is in the New York Times Magazine.

Academic studies on placebos, nocebos, and the BMJ article about the mummy’s curse:

Howick, J. Unethical informed consent caused by overlooking poorly measured nocebo effects. Journal of Medical Ethics. https://ora.ox.ac.uk/objects/uuid:07126ead-92c8-4b82-87b2-7e677aaf98b5

Colloca L, Miller FG. The nocebo effect and its relevance for clinical practice. Psychosom Med. 2011;73(7):598-603. doi:10.1097/PSY.0b013e3182294a50

Nelson MR. The mummy’s curse: historical cohort study. BMJ. 2002 Dec 21;325(7378):1482-4. doi: 10.1136/bmj.325.7378.1482. PMID: 12493675; PMCID: PMC139048.

Why scrambling back to 2019 is not progress

Loyal readers will know my fascination with Keith Jarrett’s unplayable piano. In 1975, the jazz pianist was prevailed upon — against his better judgment — to take the stage in front of a large audience at the Cologne opera house. Thanks to a mix-up, Jarrett was forced to play on a beaten-up rehearsal piano. He nevertheless produced a magical performance and a live album that sold millions.

It is a memorable example of the way that obstacles can produce a creative or productive response, and by no means the only one. After Django Reinhardt’s left hand was badly burnt in a fire, doctors said he would never play guitar again. Instead he became a jazz legend after he learnt to play in a distinctive style with two fingers. A teenage Doris Day switched from ballet to singing after a car accident shattered her leg.

These are more than merely tales of triumph over adversity. In each case, it seems that the adversity was necessary for the triumph to occur at all. But what exactly is happening and are there lessons we might learn for a post-pandemic world?

Let’s start with clarity about what is not happening. Day, with her shattered leg, did not try harder to dance; instead she trained as a singer. Jarrett and Reinhardt found different ways to play to overcome the limitations of Jarrett’s piano and Reinhardt’s wounded hand. The crisis blocks the old path and we explore until we find a new one.

This process can happen almost instantly, as when Jarrett wrung extra volume out of an undersized piano, while avoiding the tinny upper registers, shaping a soothing yet energetic improvisation out of the middle and bass tones. Such a playing style was always available to him, but he hadn’t tried it.

Similarly, we were always at liberty to go for a walk instead of a coffee with friends, or video-chat with distant family instead of sending an annual Christmas card. But it can take a jolt to awaken us to what has long been possible. Sometimes it takes longer to adjust. Day retrained; Reinhardt got a different guitar and developed a new style of playing. As an economist I am obliged by convention to call this “investment in new capital and skills”.

The pandemic has induced plenty of that sort of investment. Home workers have boosted their broadband, installed webcams and taken delivery of more comfortable chairs. We have also picked up some basic skills; in video meetings we avoid sitting with windows behind us or with the camera pointing up our noses. Most of us now know how to switch off the filter that makes us look like a cat. When I interview people remotely for radio broadcast, they need to record themselves locally and use a file-transfer service to send over the large audio file. These requests used to bewilder many, but few now hesitate. We have learnt to cope.

More subtle but perhaps more important is the shifting of social norms. I have just launched my latest book in Poland by giving TV interviews from my study in Oxford. Pre-pandemic, the alternatives would have been to fly to Warsaw (probably too much time and expense all round), to answer some questions over email or perhaps to talk to the London-based correspondent of a Polish newspaper. Now we all accept the remote TV interview: if the audience is underwhelmed by me, it will not be because they dislike the camerawork.

A shock can prompt us to find new and better ways to live our lives, both individually and collectively. We try new ideas, develop new skills, invest in new kit and draw strength from the fact that others are doing likewise. Resilience is essential but is not enough: we need to be able to explore, experiment and adapt.

In his new book, Recovery, Andrew Wear observes that major shocks have sometimes led to surges in productivity and to other forms of renewal, but that such happy stories are by no means guaranteed. After the first world war and a deadly pandemic, the UK economy stumbled in the 1920s, while the US economy surged. After the devastation of the second world war, Japan and Germany both experienced economic miracles. Wear argues that the basic difference is that the UK was scrambling to get back to Victorian-era glories, while the US, Germany and Japan — albeit in very different circumstances — were looking forward, not back. Even measures such as the postwar dismantling of German industrial plants seemed to help: it meant that West Germany was installing only the latest designs.

There is a risk of glib generalisation here, and there is vastly more to say by Wear and many others, but the basic observation rings true. A crisis is not an opportunity unless we seize it, and that means being willing to learn and change. When the pandemic finally fades to a low grumble in the background, some people, organisations and governments will be building on what we’ve learnt. Others have been scrambling to get back to 2019 all along.

Written for and first published in the Financial Times on 24 September 2021.

The paperback of “How To Make The World Add Up” is now out. US title: “The Data Detective”.

“One of the most wonderful collections of stories that I have read in a long time… fascinating.”- Steve Levitt (Freakonomics)

“If you aren’t in love with stats before reading this book, you will be by the time you’re done.”- Caroline Criado Perez (Invisible Women)

The Truth About Hansel and Gretel

Was the fairy tale of Hansel and Gretel – the story of a woodcutter’s children abandoned in the woods and left at the mercy of a witch – in fact, early true crime? A hit book, The Truth About Hansel and Gretel, said that historical records and archeological remains pointed to the story being based on fact. Are we too quick to dismiss the truth behind tall stories? Or are we always falling for tales that are too good to be true?

Cautionary Tales is written by me, Tim Harford, with Andrew Wright. It is produced by Ryan Dilley and Marilyn Rust.

The sound design and original music is the work of Pascal Wyse. Julia Barton edited the scripts.

Thanks to the team at Pushkin Industries, including Mia Lobel, Jacob Weisberg, Heather Fain, Jon Schnaars, Carly Migliori, Eric Sandler, Emily Rostek, Maggie Taylor, Daniella Lakhan and Maya Koenig.

[Apple] [Spotify] [Stitcher]

Further reading and listening

Hans Traxler’s book is, of course, The Truth About Hansel and Gretel – unfortunately it is available only in German. An excellent starting point to understand the hoax is Jordan Todorov’s article for Atlas Obscura. Paul Berczeller’s documentary about Takako Konishi is This Is a True Story.

The study of the effectiveness of flagging satire is R Kelly Garrett, Shannon Poulsen, Flagging Facebook Falsehoods: Self-Identified Humor Warnings Outperform Fact Checker and Peer Warnings, Journal of Computer-Mediated Communication, Volume 24, Issue 5, September 2019, Pages 240–258, https://doi.org/10.1093/jcmc/zmz012

A Nobel memorial prize for turning statistics into insight

Correlation is not causation. Behind that cliché lies an important truth. In January this year, for example, the UK had one of the most stringent lockdowns and one of the highest death rates from Covid. New Zealand had no deaths and few restrictions. Yet, no matter what your favourite YouTube conspiracist might say, lockdowns don’t cause waves of Covid. Waves of Covid cause lockdowns.

But while “correlation is not causation” is an important warning, when policymakers come asking questions, it is not much of a response.

For example: why do more educated people tend to have higher incomes? Is it because education causes higher incomes, or because smart, energetic people thrive in both school and the workplace?

Why do richer places tend to have lots of foreign-born workers? Is it because the immigrants boost incomes or because people head to where the money is?

Places with lots of storks also have lots of babies. Is that because storks deliver babies or because large nations have room for both? The storks and babies example is something of a cautionary tale, as I explain in my book, How To Make The World Add Up. In 1965, the celebrated statistical communicator Darrell Huff told a US senate hearing that the correlation between smoking and cancer was just as spurious as that between storks and babies. It is a grim example of how easily a healthy scepticism can curdle into cynicism.

All this explains why I was excited by last week’s announcement of the Nobel memorial prize in economics. The prize winners, David Card, Joshua Angrist and Guido Imbens, led the charge in what became known as “the credibility revolution” in economics.

Faced with messy real-world data, it is tempting for economists to shrug and turn away from crucial questions such as “Does education raise incomes?” and “Do immigrants boost productivity?” Card, Angrist and Imbens showed the profession that we can be more ambitious.

In 1992, New Jersey raised its minimum wage from $4.25 to $5.05 an hour. Might that make some fast-food workers too expensive to employ? Card and Alan Krueger spotted a natural experiment: eastern Pennsylvania sat next to New Jersey, with a similar economy, but Pennsylvania had not changed its minimum wage. Card and Krueger compared employment in New Jersey and eastern Pennsylvania, and found no sign that fast-food jobs had been lost when the minimum wage went up in New Jersey. It was a hugely influential finding, but perhaps the most important part of it was not the result, but the demonstration that economists could find data to answer serious policy questions.

Angrist and Krueger tackled the education-income question by observing a quirk in the education system in the US. Consider two children, one born in late December and the other born a couple of weeks later in early January. The December child starts school a full year earlier. However, both children could legally leave school on their 16th birthdays, a couple of weeks apart. The difference seems trivial, but in 1991 Angrist and Krueger showed that the January babies spent measurably less time in school and earned less, too.

Of course only some children walk out of school when they turn 16; most do not. This is typical of natural experiments: rather than randomly assigning drugs and placebos, natural experiments randomly assign something vaguer, such as an opportunity to quit school sooner.

It is a statistical headache, but Imbens, with Angrist, developed a toolkit to help researchers discern crisp causal relationships from fuzzy natural experiments. Economics has become a field full of clever empirical findings, and most of them stand on the Angrist-Imbens foundation.

This year’s Nobel memorial prize is bittersweet. It is a reminder of the suicide of Alan Krueger in 2019. Krueger co-authored several of the papers cited by the Nobel committee.

It is also a stark illustration of the gap between political rhetoric and the best data detective work. For example, one of Card’s most influential papers touches on the hottest topic in British politics today: can you raise wages by restricting immigration? Prime Minister Boris Johnson says that he can and he will.

The data suggest a different story. Card studied the Mariel boatlift, an exodus of 125,000 people from Cuba to the US in 1980. Most of those people arrived and stayed in Miami, and most were relatively unskilled.

Despite Miami’s unskilled workforce increasing by nearly 20 per cent over the course of a few months, Card found no sign that unskilled wages in Miami were depressed. Instead of using the influx of workers to drive down wages, Miami businesses found ways to employ these new workers. It is just one study, but Card’s work prompted economists to rethink simplistic models of immigration. The balance of evidence now suggests that immigrants are more likely to boost productivity than suppress it.

The world is full of interesting data, but it is not full of rigorously controlled experiments. It is all too easy to cherry-pick treacherous statistics to argue that lockdowns cause Covid. But it is not much better to dismiss evidence entirely, reassuring people that cigarettes are probably safe because correlation is not causation.

We can do better. As Krueger once said: “The idea of turning economics into a true empirical science, where core theories can be rejected, is a BIG, revolutionary idea.”

Just so. It really is possible to turn statistics into insight. And we have to try.

Written for and first published in the Financial Times on 12 October 2021.

The paperback of “The Next 50 Things That Made The Modern Economy” is now out in the UK.

“Endlessly insightful and full of surprises — exactly what you would expect from Tim Harford.”- Bill Bryson

“Witty, informative and endlessly entertaining, this is popular economics at its most engaging.”- The Daily Mail

I’ve set up a storefront on Bookshop in the United States and the United Kingdom – have a look and see all my recommendations; Bookshop is set up to support local independent retailers. Links to Bookshop and Amazon may generate referral fees.