Tuesday, June 16, 2020


Two world views reconciled through chaos, but where does climate change fit into all this?

“It is now 180 years since Thomas Carlyle, to some groans, advanced his “great man” theory of history. It is the exceptional human who determines the course of events, he said, and not the impersonal trends of economics, ideas and technology.” With these words, Janan Ganesh, in last week’s Financial Times[1], contrasted these two world views without coming down firmly on one side or the other. The question has revived because of the way we look at the great, or not so great, men or women in our history, not least in the role of commemorative statuary and how far we should re-interpret our own past.

There is, however, another way of looking at the great man theory. It is that human affairs are truly chaotic[2] in the mathematical sense of the term, which is in no sense the same as random or completely unpredictable, or without logic or direction. Chaotic means that small differences in the boundary conditions, such as a handful of votes in an election, or a particular individual, can, though only at certain junctures and with the right opportunities[3], massively alter the future, for better or for worse. But that in no way diminishes the importance of the "impersonal trends" or the realities of geography, economics, technology or the Marxist “class struggle”.[4]

The famous (and widely misinterpreted) butterfly effect is, of course, not confined to great men or women.[5] One plausible story ascribes the UK’s 2016 Brexit vote to a 2013 bar-room brawl in the House of Commons, leading through a convoluted route to a Falkirk bye-election, changes in Labour party rules, and the election of Jeremy Corbyn as party leader. The Corbyn leadership election was in itself a demonstration of accidental and unintended consequences, and there are plenty of credible arguments that his ambivalence contributed massively to the unfolding Brexit debacle. 

Ganesh cites Napoleon as an example and asks whether anyone else could or would have restored order in France after the chaos of the revolution. I have no doubt someone would eventually have succeeded. But the question is a good one. Suppose France had had a Lenin rather than a Napoleon, for example, or Russia had had a Napoleon after its own revolution. The outcomes might have been better or worse in either case, though we shall never know.

Ganesh also defends Mrs Thatcher as the saviour of the UK economy at the end of the 1970s. Personally I am more inclined to blame her for the de-industrialisation of Britain, the financial deregulation that led us eventually to the 2008 financial crisis, and the sell-off of social housing  that underpins a number of today’s most intractable social and welfare issues. More important to the “recovery” of the UK economy was North Sea oil, adding percentage points to GDP year on year, though that too now looks quite small in the grand scheme of things.

In terms of commemoration I'm more inclined to assign importance to the individuals in science who have totally transformed our world (quantum theory, electronics, DNA etc), although even there it has usually been true that others were already treading the same path (Darwin and Wallace for example) and we would have got there anyway. A statue or sculpture that could capture the reality of Schrodinger’s cat really would be worth keeping.

Of course, the biggest impersonal trend now confronting humanity is the rapidly approaching crisis of climate change. That has its own critical limits to particular parameters, or “tipping points”[6]. The combination of these, which have their own analogues in chaos theory, with the entrusting of the world’s largest energy economies to individual authoritarian leaders such as Trump, Bolsonaro or Xi Jinping, is potentially a fine example of chaos in human behaviour interacting with the inexorable consequences of the laws of physics.

We may or may not succeed in containing climate change, but if we hit the critical tipping points because a few leaders, in the next few years, refuse to confront the known challenges, then it will indeed be a frightening collision. The “great men or women” of today will carry huge individual responsibilities, as their actions collide with the massive impersonal trend in radiative forcing. Given that the UK is in 2021 hosting the critical COP 26 meeting[7], it would be nice to be able to assume that this was being approached with both commitment and sound judgement. The handling of the Covid-19 crisis by some of the above does not, unfortunately inspire confidence.

[1] FT, 12th June 2020
[2] An earlier explanation of chaos theory, and what it actually means can be found in an earlier posting: CHAOS AND CLIMATE. And a physical illustration at https://www.math24.net/double-pendulum/
[3] But for the Civil War Ulysses S Grant would have remained as an undistinguished ex-Army officer working in his father's leather goods business.
[4] AJP Taylor, in his history of the First World War, gets part way towards this point, arguing that we can distinguish between the general causes of war, eg national rivalries, and the specific provoking incident, an assassination. His analogy is that widespread use of motor cars
[6] The existence of these is sometimes disputed by sceptics who have failed to grasp the science. Climate science suggests there may be several, but the most intuitively obvious relate to the fact that ice melts at a particular temperature. One tipping point in consequence is the polar temperature at which polar ice starts to melt. This effect commits both to eventual sea level rise and the accelerant effect of reduced ice cover which reduces reflection of the sun’s rays at the pole.
[7] COP 26 is the 26th session of the Conference of the Parties (COP 26) to the UNFCCC

Friday, June 12, 2020


Two economists, Milton and Maynard[1], are walking in the woods and discussing matters of great importance, but from very different political perspectives, when Milton sees a bunch of brightly coloured berries. He says to Maynard: “To demonstrate my point that everything and everyone has a price, I’ll offer you a hundred pounds if you will eat one cluster of those berries.” Maynard considers the matter, and against his better judgement accepts the offer and eats the berries.

Shortly afterwards, Milton regrets that he was so generous, and complains to Maynard that he will now be short of cash for the rest of the week. Maynard, who by now is starting to feel a little unwell, is not entirely sympathetic, but generously decides to make the same offer to Milton. Milton accepts, eats the berries, and gets back his hundred pounds.

At the end of the walk, Maynard says to Milton: “Well that was really stupid of us. Neither of us is any better off and we may have made ourselves ill.” To this Milton retorts: “Yes, but just think. We have just added two hundred pounds to national GDP.” Maynard considers carefully before he replies. “The only positive thing I can say about this particular addition to national income is that at least it will not have added to carbon emissions.”

On the assumption that economists are always scrupulously honest[2] and declare their income, GDP will indeed be recorded as two hundred pounds higher. Both economists also pay tax at the higher marginal rate of 40%, and tax revenues increase by eighty pounds.

That is not the end of the story. Both Maynard and Milton are later admitted to hospital with mild poisoning, and their (free) treatment results in the NHS spending an additional eighty pounds, a further addition to GDP. Milton adopts a pose of righteous indignation. “A perfect illustration of my point. The private sector creates the wealth and the public sector spends it.”

Of course, had the woods been put into lockdown, or had the consumption of wild berries been prohibited by law, then none of the above would have happened, and the economy would not have been expanded by the income generating activities of our industrious economists. However, it would have recovered very quickly once that prohibition was lifted, and other foolish economists could once again risk their lives by consuming poisonous berries, or tombstoning at Durdle Door.

There are lessons we might draw from this sorry tale, some of which, curiously, may be relevant to thinking about the shape of a post covid-19 economy?

1.    GDP is a highly imperfect measure of human well-being or of standards of living. Not all of what we choose to classify as GDP generates real wealth or contributes anything of significant permanent personal or social value. In a less trivial context gambling, tobacco, alcohol, and vice will all, debatably, and for some people, fall into this category. But GDP measures what GDP measures, including the illegal drugs trade[1]. GDP does not make moral judgements about Milton and Maynard, or tell us what activities are more or less socially desirable. It merely measures transaction volume and fails to measure valuable activities, like child rearing, that are not part of a financial transaction. If we make personal choices on consumption and lifestyle that happen to result in lower growth, that really should not matter in either the short or the long run.

2.    Essential services, in the provision of health, education and infrastructure, should be seen as an essential input to normal economic life, not as a discretionary extra whose provision is dependent on an arbitrary and inappropriate measure of wealth creation. GDP does not of itself create wealth. And building a casino or a tobacco factory is not a necessary condition for a better health service. We should ridicule ludicrous mantra such as Milton’s dogma above on what sectors create and spend wealth. They are meaningless.

3.    In the absence of significant destruction of the capital stock in the current crisis, and other things being equal, there is not necessarily any reason to suppose that the economy, and consumer spending in particular, cannot bounce back quite quickly from its big decline this year – the so-called V-shaped recovery.  Milton and Maynard can resume their walks in the woods.

4.    However, there are many reasons to be more pessimistic about recovery. The greatest is the risk that governments may fail to adopt adequate or sufficiently coordinated macro-economic policies. The most obvious mistake would be a resumption of austerity measures in a misguided attempt to “pay for” the extra costs to the government of supporting business and households through the worst of the crisis.[2]

5.    The other unknown for GDP is consumer confidence. With sensible macro policies this could return quite quickly. “But being allowed to go out and spend is less important than feeling confident about doing so.”[3] This mirrors what happened before lockdown was imposed. Numbers of institutions were already closing, and people voluntarily social distancing[4].  

6.    Some of this will also translate into what is the new normal. It is hard to predict to what extent commuting to the office will be replaced by home working, or what the impacts will be on the demand for leisure travel and aviation. A clear demand for more resilient health and other systems will almost certainly shorten global supply chains. Many people are hoping that the new normal will also accelerate a greater drive development to a Green and more sustainable global economy. All these questions are important and inter-linked, but hard to predict with confidence.

7.    The bigger threat to the future of humanity, bigger than covid-19, is that of human induced climate change. Tim Harford[5] has observed that even the dramatic recent declines in economic activity have resulted in only modest falls in carbon emissions. The reason is that many of the activities stopped by lockdown, like the transactions of our two economists, and in the service sector of the economy, were not carbon-intensive anyway. Treatment of growth as an end in itself is foolish, but restricting economic growth is not per se a plausible route to a zero-carbon economy.  Decarbonisation will in any case require a great deal of investment, manufacturing, construction, and indeed new services. 

[2] Fortunately this reality seems to have penetrated even into the current political establishment, possibly with the honourable exception of old guard figures such as Ian Duncan Smith.
[3] Megan Greene, Financial Times, 9 June 2020
[4] This phenomenon was also observed in Sweden which did not impose a formal lockdown.
[5] Saving the planet demands sacrifices just as Covid-19 does, Tim Harford, 5th May, Financial Times.