Straight to the point

A little over a year ago, as inflation in the United States spiked to an alarming 5.4%, the nation watched on as President Biden addressed the public’s concerns from a White House lectern. His remarks in response to a reporter’s question could stand as the Platonic ideal for why trust in elected officials and democratic institutions has declined so catastrophically: “Our experts believe, and the data shows that most of the price increases we’ve seen were expected, and expected to be temporary.”

In other words, Biden claimed prophetic insight on inflation because he was advised by experts who had access to vast data sets unavailable to the public. We know how this story ended. The data turned out to be ambivalent. The experts were confused. The presidential prophecy failed by a wide margin — a year later, Biden was telling anyone willing to listen that inflation, which in June reached 9.1%, was his “top economic priority”.

We seem to live in an age of failure. Consider the trajectory of the current crop of leaders in the Western democracies. Less than two years after his election, Biden is a political corpse, with approval rates as low as 31%. Two and a half years after winning a smashing electoral victory, Britain’s Boris Johnson has resigned in disgrace. In France, Emmanuel Macron, though re-elected, now faces a hostile parliament. In Italy, unelected super-technocrat Mario Draghi has been forced to resign by his unhappy coalition partners. In Germany, a cats-and-dogs government is struggling with past policy failures in energy supply and military preparedness.

What are we to make of this? Are elected leaders today exceptionally dim or — as in the plot of a Greek tragedy — have they been raised to power only to be crushed by its impossible demands? The two possibilities aren’t mutually exclusive, of course, but those wishing to learn where to set expectations of government would do well to pick up Paul Ormerod’s subversive 2004 book, Why Most Things Fail: Evolution, Extinction, and Economics. If the central thesis of the book is correct, then the practice of democracy has for decades been stuck in a sterile space between fantasy and hubris.

Ormerod is a British economist blessed with an unusual combination of gifts. He can decode the obscure mathematical models that clutter present-day economics while writing in English that is easily understood and a pleasure to read.

He begins his tale with a paradox. Economic theory, he informs us, has long been fixated on artificial balance (between supply and demand), structural success (the theory of the firm), and rational behaviour. Yet the economy is a chaotic transactional swirl, the chief feature of which is failure. Of the top 100 American companies between 1912 and 1995, 29 had gone bankrupt by the end date, 48 had ceased to exist as corporate entities, and 52 had survived but dropped out of the top 100 list. Only 19 companies managed to cling to the top over the entire 83-year period. If we look at all US companies with an annual turnover of more than $25,000 a year, we find that 600,000 of them, or more than 10%, go extinct every year.

We tend to lionise winners — but for companies to fail is the rule, not the exception. The same holds true for government policies. Joe Biden may be exceptionally successful at failing, but he should be considered the patron saint for a whole class of political elites who offer “solutions” and deliver failure.

Can government “solve” unemployment? Every candidate for office promises to do so. On this question, however, Ormerod delivers a devastating historical analysis of the British economy, which, uniquely, has kept good records stretching far into the past. Between 1870 and 1938, unemployment in Britain averaged 4.9%. After the Second World War, the size of the government doubled in proportion to the economy as a whole. One rationale behind this expansion was that, unlike an untamed free market, the state could deliver full unemployment. Yet the unemployment rate between 1946 and 2004 was 4.5%, only marginally lower than the earlier period. Government can spend and hire, and in this way inflate employment — but because unemployment is never structurally “solved”, it will inevitably return.

Can government “solve” economic inequality? Massive state investment in education has failed to induce the mobility required in a meritocratic society, Ormerod observes. According to the evidence, developed democracies tend to have lower rates of inequality than poor or authoritarian nations — but at the moment, for unknown reasons, inequality is climbing, and governments have no clue how to reverse the trend.

Can governments “solve” segregated housing? Decades of anti-discrimination legislation and regulation have had little effect. Neighbourhoods across the West that have segregated along ethnic, racial, or religious lines have, if anything, multiplied. This may have nothing to do with systemic bias or racism — Ormerod can show through game theory how a very slight preference at the individual level for living near one’s group can deliver stark segregation at the level of the system.

This divergence between individual intent and systemic outcomes helps explain the astounding persistence of failure. Human societies aren’t mechanical contraptions that can be redesigned, in whole or in part, by the social engineers of the state. They are complex systems. Government policies seek linear outcomes, treating the citizenry as a passive mass. But we are human: we are causes as well as effects. Individuals will respond to government mandates by changing their behaviour in a range of unpredictable ways. That in turn will nullify the conditions on which the policy was planned. Government intent will get swallowed by complexity and result in failure.

Human systems are often arrayed in a power law distribution: a few power users at the top of the chart followed by a steeply declining long tail of less significant players. The power law describes many social and economic relationships, but Ormerod, in a brilliant tangent that illuminates the failure of Covid-19 preventive policies, applies it to viral infections. In networks determined by the power law, he writes, “if just one single component becomes a carrier of a virus… there is a risk that this will percolate across the entire population”. He continues:

“Policies which try to contain percolation across such networks are very hard to implement. Unless each one of the very small number of highly connected individuals is targeted effectively and immunised, the virus will persist. Immunisation at random of even a large proportion of the population will simply not succeed, unless purely by chance not just some but all of the highly connected are caught.”

Ormerod published these words in 2004. We can only wonder how much isolation and disruption would have been avoided over the last two years if the health authorities of the world, in their expert wisdom, had heeded them instead of chasing the shadow of Zero Covid.

“We do not want to adopt an almost nihilistic view that nothing can be done,” Ormerod warns — and of course he’s right. We can’t predict, but we can react swiftly to overcome our difficulties. Biden and his experts failed to see what was coming with inflation, but the Federal Reserve has slammed the brakes on the US economy and this will hopefully reduce inflationary pressures. We are not helpless cogs in a machine. The very quality that makes our actions so inscrutable in the aggregate — our agency — endows us with the motive power to tackle and fix our troubles.

One need not be a nihilist, either, to accept that, in the world according to Ormerod, the limits of human knowledge press much tighter to the skin than presidents and prime ministers have been willing to admit. The explanation for the collapse of trust in democratic institutions is a simple one: politicians promise what they can’t possibly deliver, and, in the digital age, their ignorance is constantly exposed. Biden, Johnson, and company are only the latest in a long line of elected leaders who claimed to bring the fire down from the heavens and “solve” the human condition. They mostly failed. The public, having bought into the Promethean rhetoric, can only interpret failure as the consequence of corruption rather than incompetence.

There’s a great deal of vanity involved in all of this. Our political elites, encouraged by a priestly caste of experts, love to pose as miracle-workers. To them, and to us who elect them to office, I would every day recite Ormerod’s final dictum: “We may intend to achieve a particular outcome, but the complexity of the world, even in apparently simple situations, appears to be so great that it is not within our power to ordain the future.” Only when this lesson is internalised will we begin to emerge from the age of failure.

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