Monthly Archives: July 2009

“Why did no one see the crisis coming?” Queen Elizabeth asked last year. “A failure of the collective imagination of many bright people” who were all “doing their job properly on its own merit”, was the answer many of those bright people gave in a letter to the Queen last week.

If the economics profession could not warn the public about the credit crunch and the recession, what is the profession’s raison d’etre? Did this reflect, as some claim, that economics has gone astray with models that no longer help understand economic reality but rather distort it? Did such models even contribute to the crisis? FT writers and outside experts will set out their views in the posts below. What is the point of economists? What do you think? Click on the “comment” button to take part.

The electric toaster seems a humble thing. It was invented in 1893, not long after the light bulb and long before the microchip and the laser. This century-old technology is now a household staple, and reliable, efficient toasters are available for a few pounds. Nevertheless, Thomas Thwaites, a postgraduate design student at the Royal College of Arts in London, discovered just what an astonishing achievement the toaster is when he embarked on what he called “The Toaster Project”. Quite simply, Thwaites wanted to build a toaster from scratch.

The difficulty of the task began to become clear. To obtain the iron ore, Thwaites had to travel to a former mine in Wales that now serves as a museum. His first attempt to smelt the iron using 15th-century technology failed dismally. His second attempt was something of a cheat, using a recently patented smelting method and a microwave oven – the microwave oven was a casualty of the process – to produce a coin-size lump of iron.

Further short cuts were to follow. Plastic comes from oil, but despite launching a charm offensive against BP, he never did make it out to an oil rig. His attempts to make plastic from potato starch were foiled by hungry snails. He settled for scavenging plastic from a local dump, melting it and moulding it into a toaster casing.

The remainder of the article can be read here. Please post comments below.

My 15-year-old is disinclined to work for her GCSEs, saying her time is better spent preening herself in preparation for assignations with her delightful, diligent, privately educated, moneyed boyfriend. She insists the money spent on nail-painting, hair-colouring and the like is an investment and will be more than repaid when he marries her. Is she deluding herself?
A curious mother

Dear Curious Mother,

Surprising as this may seem in the 21st century, your daughter’s strategy is not unusual. Evidence on speed-dating gathered by the economists Michèle Belot and Marco Francesconi shows that women are attracted by rich men, while men focus more on a woman’s physical appearance. Lena Edlund, another economist, has found that in the areas of her native Sweden where the wealthiest men live, women of prime marriageable age are over-represented.

However, your daughter is only 15; for Edlund, “prime marriageable age” is 25-44. Your daughter is either going to have to get her hooks into this chap unusually early, or she is going to have to keep him on the boil for another decade – a lot of nail-painting.

Not only is she concentrating her investments into a single asset by abandoning her education, but she may even be making her main goal harder to achieve. Belot and Francesconi discovered that a strong social trend towards “assortative mating” means that although educated, high-achieving men are not interested in marrying a rich woman, they do like educated high-achieving women, rather than shallow girls with shiny nails.

Your daughter should learn to work hard and look good at the same time. Not only will it advance her immediate goals, it will also – sadly – stand her in good stead for the rest of her life.

Questions to economist@ft.com

The Apollo 11 moon landing, whose 40th anniversary is celebrated this week, is still unsurpassed as a symbol of technological achievement. Visitors to Washington DC’s National Air and Space Museum can see the command module up close, and visitors to the Science Museum in London can see the very similar Apollo 10 version. Being this near to the spaceship defies belief: it looks more like a contraption from the steam age than the space age. Did this thing really go around the moon and come home again?

Forty years on, we have our own technological challenges, from finding vaccines for malaria and HIV to producing cheap, effective ways to generate energy without pumping carbon dioxide into the atmosphere. If we can put a man on the moon, why can’t we achieve those goals?

More to the point: Neil Armstrong walked on the moon thanks to government management, government money and one of the most famous of all government ambitions. That was President Kennedy’s 1961 declaration that, “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth. No single space project in this period will be more impressive to mankind, or more important in the long-range exploration of space.”

The remainder of the article can be read here. Please post comments below.

In your books and columns you have claimed that when people split the bill equally in restaurants they tend to take advantage of each other by ordering expensive dishes. I wonder if this is really true. Wouldn’t friends be more considerate of each other?
Considerate restaurant-goer, London

Dear CRG,

The “diner’s dilemma” you describe is a kind of prisoner’s dilemma, and in theory people should behave exactly as I have described. But many laboratory experiments suggest we are not as selfish as economists’ models claim. So you are right to ask for more evidence.

The economists Uri Gneezy, Ernan Haruvy and Hadas Yafe have been looking into this. They seated various groups of six diners at a nice restaurant in Haifa, Israel, and noted how they responded to different payment schemes. Some ate for free, and they ordered a lot. Others paid for their own order, and they ordered sparingly. Between those two extremes were those who split the bill with the other five diners: they took advantage of their fellow diners, as I would have expected.

Perhaps they were somewhat inhibited by the embarrassment of free-riding, though? It seems not. When the experimenters, in a further trial, told diners that they would pay one-sixth of their individual bill only, they faced the same costs of over-ordering as in the “split the bill” case, but if they made extravagant choices their dining companions did not suffer. Yet they ordered much the same as in the “split the bill” case, suggesting that saving money for fellow diners was not much of a consideration.

It’s worth emphasising that this experiment seated strangers together, not friends. Perhaps people are more generous when it comes to friends. Or perhaps they are simply more careful about their reputations.

Questions to economist@ft.com

…in football, that is, not cricket. If you want to find out, economist Stefan Szymanski and the FT’s excellent sports columnist Simon Kuper explain here:

As another season comes around minds turn to why England always lose the games that matter, how big a club Newcastle really are and whether John Terry will ever score in a penalty shoot-out. All these questions and more will be answered by the authors of the superlative Why England Lose Simon Kuper and Stefan Szymanski at our eve of season party on Thursday 6 August.

The event is on the City Road in London, details here. I read an earlier draft of the book and enjoyed it a lot: a well-written, statistically-driven yet somehow very funny analysis of pretty much everything in football.

Here is the speech, here is William Wallis’s report in the FT, and here’s what Bill Easterly and Chris Blattman think of it. Recommended.

It’s that time of year when hemlines get shorter and legs get browner … I am having difficulty in achieving an even tan, yet everyone else (bar none!) has a perfect pair of tanned pins. I know they’re not natural.

As most men are unfamiliar with the fake tan ritual, let me fill you in. After one has showered, one applies the cream. The substance comes out of its tube as a cream, not the colour of “tan” it will decide to be.

The question is one of when to stop. The tan won’t own up for another four to six hours, so it’s a while before I learn whether the gamble has paid off. When it emerges, it’s patchy and streaky and my knees are two satsumas. Do I reapply blindly in a bid to colour in the gaps, risking more streaky satsumas? Or do I wear trousers?
N.M.

Dear N.M.

Maybe the whole fake tan business is a game of pure luck, with winners displaying their bronzed legs and unlucky losers resorting to the trouser option. This biased sampling would create the appearance of a world where the ability to apply fake tan is universal.

If this explanation is correct, you must just keep trying and resort to the trousers whenever you fail. But this seems a counsel of despair, and, for reasons that are not purely selfless, I advise against the trousers. You might do better to consult a central banker such as Mervyn King. Extreme monetary policy, such as printing money to buy other assets, is much like applying fake tan. It is all but impossible to know whether you are doing it right at the time, you must wait some time for the results to be apparent, and it is easy to overdo it. I have never seen Mr King’s legs up close, but perhaps he is a dab hand with the fake tan. If he is a master of quantitative easing, he may also have perfected quantitative squeezing.

Questions to economist@ft.com

Euan Murray grew up on a sheep farm in southern Scotland; now he is in charge of “carbon footprinting” for corporate clients of the Carbon Trust. “If I ask my old man, ‘What’s the carbon footprint of a sheep?’ he looks at me as though I’m mad,” he explains. “But he can tell me the stocking density, what he feeds the sheep, and he can answer those questions as part of running his business.”

Quite so. Carbon footprinting, the study of how much carbon dioxide is released in the process of producing, consuming and disposing of a product, is all about the specifics. This is a refreshing change from the politics of climate change, which is all about the generics. We hear promises from our leaders of big change in the future, without any credible plans right now.

I first approached Murray to ask him about the climate change impact of a cappuccino. Loyal readers may recall that a year and half ago, I wrote about the question, pointing out that meeting any of these grand targets in a sensible way would require billions upon billions of small decisions. The cappuccino’s climate change impact depends on whether the café is double-glazed, the decisions the staff and I take to get there, the diet of the methane-producing cow that produced the milk and the source of power for the espresso machine. Last week I pointed out that there are around 10 billion products in a modern economy; that means that the problem of reducing carbon dioxide emissions is “simply” the problem of reducing carbon dioxide emissions from a cappuccino, 10 billion times over.

The remainder of the article can be read here. Please post comments below.

I’m presenting Radio 4′s Analysis this week, and asking: “Given that so many people think the government should encourage low-carbon technologies, what should the government actually do?” We talk to Professor Sir David King, Suzanne Scotchmer, Eric Beinhocker, James Cameron, Mark Williamson, David Rooney and Cameron Hepburn. Also, there are Spitfires and John Harrison’s clock. I learned a few things…

The program is tonight on BBC Radio 4 at 8.30pm BST, repeated on Sunday evening, and should also be downloadable here for a week.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
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