That has implications across the board: for financial market regulation; for corporations; for competition policy; for military strategy.
It's a very good read. Tim Harford's style is open, clear and persuasive. I found the material on the Iraq war particularly interesting - Harford attributes the change in fortune in Iraq, snatching victory from the jaws of defeat, to the innovative decisions of commanders on the ground, rather than to the 'surge' in troop numbers devised in the Pentagon.
This plausible account resonates with Tolstoy's description of Austerlitz in War and Peace and other accounts of the 'fog of war' - the innumerable obstacles, misunderstandings and mistakes that lie between a strategic plan and its implementation. The strategists believe that by issuing orders and monitoring information flows, they are controlling events on the ground like puppet masters. But orders do not get through to the front line; if they do, they are not executed; if they are executed, the unintended consequences exceed the intended consequences; and information does not flow back to the strategists, or it is misleading.
The truth in war, according to Harford (and Tolstoy), is that the outcome is determined by a host of individual decisions and strokes of fortune, mostly outside the control of the strategists. They play their games with complicated models and god-like interventions, but the battle is won or lost by people with guns shooting each other.
Indeed, Harford's book is a challenge to the Napoleonic 'great man' theory of history. Individuals and businesses can (as he describes in a convincing passage) position themselves, with luck and skill, at the crest of a wave like a surfer. But the surfer doesn't control the wave; he can read it, understand it and ride it for a while until its energy or his skill fails. Meanwhile, there are hundreds of others floundering in the water or waiting for the next wave. How do we, as a species, get surfers to master the waves? By putting thousands of them in the water, trying and failing again and again. You can't have the occasional glorious success without thousands of failures.
And there are great surfers who seem to catch every wave and ride it all the way in. They achieve a higher level of mastery than the rest of us - learning through trial and error. They are inspiring figures, and some are exampled in Harford's book. Harford's heroes are deeply, thoughtfully engaged in their environment and strive for mastery over it. But always at the local, micro level.
I think this lets macro strategists off the hook. It's like saying we should never try to make any judgement at the macro level, since it is always going to be wrong. Local context is everything.
I believe there's a dialectic between macro and micro-level decision-making. A macro decision is essential in some contexts: we cannot leave the decision whether or not to go to war to the captains or the generals. It has to be the politicians who decide. They do not always make the wrong decision.
As Harford explains with admirable clarity, the financial crisis was compounded by the complexity and interconnectedness of financial markets. But that's not what caused it. It was caused by a macroeconomic policy error on a global scale - one that was clearly visible at the time. An excess of cheap credit from China and other emerging economies could and should have been offset by tighter monetary policy in developed economies. Policy makers globally made a bad call, and we are all paying the price.
We will learn from that mistake. We don't have the luxury of being able to learn from thousands of different experiments at the macro level. But that does not absolve us, or our leaders, from the responsibility of taking decisions. Seeing the trees is important, but so is seeing the wood - or trying to.
The central conceit of the book is that Harford himself can see the wood. It reminds me a bit of Bob Dylan, that erstwhile leader of the protest movement, exhorting us all not to follow leaders. What he meant was: don't follow other leaders. Harford is an expert arguing that experts should be ignored. Does he mean other experts?
Adapt: Why success always starts with failure
Little, Brown £20.00
- Erik Britton is a director at Fathom Consulting, which specialises in macroeconomic and financial market analysis.