12 Books of Christmas: Freakonomics

I tend to describe myself as a communist at the outset of political discussions with strangers as a strategy for tuning them into the idea that I’m not convinced of the inherent and unassailable correctness of any current political and economical precepts. Do I believe in a growth-based economy? Well, no – infinite growth is impossible based on well-understood resource scarcity and so automatically creates inequality in resource redistribution on a vast scale. Do I believe in “user pays”? Well, no – most public services require such a vast supporting structure that to try and target individual users for any portion of the infrastructural costs would bankrupt individuals without generating sufficient revenue. Do I even believe in democracy? Well, no – as they say, the problem with democracy is that it gets the government it deserves, but in fact because a plurality of entrenched interests entangled with the class structure we inherited from the middle ages I also don’t think we’ve yet really experienced a democracy. The crunch always arises when I’m asked to provide a positive conception of a political structure – do I believe in Stalinist totalitarianism? Well, no – Stalin killed more people than Hitler in the name of progress while achieving lower standards of living than so-called democracies, and let’s not forget about Mao. The truth is that I don’t have a complete political and economical philosophy to deploy in addressing every problem I see in the world, which always puts Tom Lehrer in mind:

Freakonomics lives in that uncanny space being mocked by Lehrer: where the answers aren’t always right, but there’s a deep thought process being deployed. I doubt I agree with  Dubner and Levitt on much of their politics, but I find their methods fascinating and useful. Their main method is simplicity itself – just take a look at what the incentives are for any given action or reaction, and see what falls out. They follow this up with a dose of reviewing historically what’s happened and trying to understand the similarities or differences. Even if you can’t do complex math – and I can’t anymore – I think you can use this kind of fundamental evaluatory method to predict broad trends.

The example that’s most on my mind this year is the effects of Brexit. From late last year I was going to panel discussions with building industry leadership who were palpably nervous about the effect that the Brexit vote created and who were pumping the brakes on their speculative developments. Queue forward to late June and the Pound loses something like a quarter of its value overnight – and hence would have pumped all the prices for imported building materials by an equivalent proportion. If your profit margin is less than the difference in additional costs, and for most contractors in London the stated overhead and profits in their tenders is dramatically less than 25%, then any profit or value you were hoping to get out of the project is in real jeopardy whatever your contractual arrangements and whatever your supply chain. If your deal is backstopped with pre-lets, then over the 50-year design life of a building you might think it’ll all work itself out, but if not… well, I can certainly see why there was a down-tick in the building sector starting at the announcement of the referendum.

I think that we haven’t yet had the honest conversation about Brexit, because both sides have very different ideologies and neither side feels like it can actually state its position. Immigration is at the heart of these discussions, but yet there’s no honest discussion about what the real trade-offs are. Anti-immigration forces are vague in their “Britain for the British” mantras, but pro-immigration forces aren’t honest about the level of cultural upheaval generated by cultural interlopers either. I’ve experienced immigration twice, as a child and as an adult, and I think it’s unquestionable that I experienced and engendered cultural disruption both times. I remember vividly sitting in one meeting with a couple of company directors advocating a way of thinking about a particular engineering problem and being told “we’re tired of hearing about your New Zealand experience”. Was the solution I advocated technically feasible? Only maybe. Was it politically acceptable, with an appropriate risk profile for a major London project? Well, categorically not it turns out. If a nice clear-cut technical engineering problem can engender this kind of conflict, the ephemeral and intangible interface between cultures can only be more fraught.

Freakonomics can’t answer the question of whether Britain is better off inside or outside the EU, but I think it can point out deeper systemic ways of thinking about the problems. What are the incentives? What are the mechanisms? What is the real trade benefit and real loss for leaving? What is really important to the people who voted each way, and are there alternate ways of getting those people those things? Culture and race are central to both sides, but I’ve never yet seen a coherent argument, say, for why the English (or French!) should be comfortable with head-scarves let alone chadors or a full burkha. Why should they accept those cultural aliens into their society? Diversity is a liberal/left sacred cow. As a twice immigrant, I can certainly sympathise with wanting to retain your distinctive cultural identity, but we need to really understand what effect we’re having on the places we go, and those places need to accept those impacts – and we need to be prepared to adapt ourselves. My emotional response to these questions is pretty clearly that immigration’s benefits outweigh any cultural friction, even for Islam, but I’m at least honest with myself that I don’t have an argument to convince the doubter because it’s an article of faith based on my own experiences.

I think I was a pretty good engineer before I read Freakonomics, but its key concepts for how to think about motivation and process have definitely helped me to develop tools for working with other professionals. Of course MEPH engineers don’t want to use a full 3D modelling suite for their designs – the incentives in their profession are about conceptual provision, and final system will be designed by the installation contractors. Of course all contractors pursue change orders, because the profit margins aren’t constrained by the tiny percentages they need to declare in order to win the initial project.  Ultimately the message I got from Freakonomics was not to hate the player, hate the game. If someone’s behaving in a way you don’t like, I think chances are good they’re being motivated by external factors which you need to understand. I hear people complain all the time about bicyclists in Wellington occupying the whole road on our windy hills – but of course they do, because there isn’t room to pass a bicycle and if they hover right on the margin of the road like they’re “supposed to”, cars will try and take that gap, so the safest thing is to occupy the space, which is simple honesty about the space that’s available.

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