A level Economics: Starting Fair and Dealing with Luck: Comparing Monopoly and Real Economies

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Think about Monopoly, the game where you buy properties and compete to win. Now, let's compare it with how the real world works when it comes to money, businesses, and luck.

In Monopoly, every player starts with the same amount of money. This makes sure that nobody gets an advantage right away. It's like starting a race with everyone on the same line. This makes the game about skills and strategy.

But in real life, things can be different. Some people start with more money or better chances. It's like some players in Monopoly starting ahead with better properties. This isn't fair, and it's how it is in the real world sometimes.

In Monopoly, luck comes into play with the roll of dice and the cards you draw. Sometimes you land on good spots, and sometimes not. Luck can make a big difference in the game. Similarly, real life has surprises too. New inventions, what people want to buy, and unexpected events can change how well businesses and people do.

But here's where they're not the same. In Monopoly, luck only matters during the game. In real life, luck is just one piece of the puzzle. Real life is more complicated. It's not just about luck – it's about how things are made, what people like, and rules set by governments. All of these things make the real world much harder to predict than a game.

So, in Monopoly, luck follows the game's rules. In real life, luck mixes with many other things, making it more complex. The comparison between Monopoly and real life reminds us that the real world is unfair and trickier.

Luck and Politics

Bagehot in The Economist

Monday june 19th was a typical day in British politics insofar as it involved a series of humiliations for the Conservative Party. mps approved a report on Boris Johnson condemning the former prime minister for lying to Parliament over lockdown-busting parties. Rishi Sunak skipped proceedings for a fortunately timed meeting with Sweden’s prime minister. On the same day, the invite emerged for an illegal “Jingle and Mingle” event at the party’s headquarters during the Christmas lockdown of 2020. A video of the event had already circulated, with one staffer overheard saying it was fine “as long as we don’t stream that we’re, like, bending the rules”. Labour, through no efforts of their own, had their reputation comparatively enhanced.

Luck is an overlooked part of politics. It is in the interests of both politicians and those who write about them to pretend it plays little role. Yet, as much as strategy or skill, luck determines success. “Fortune is the mistress of one half of our actions, and yet leaves the control of the other half, or a little less, to ourselves,” wrote Machiavelli in “The Prince” in the 16th century. Some polls give Labour a 20-point lead. Partly this is because, under Sir Keir Starmer, they have jettisoned the baggage of the Jeremy Corbyn-era and painted a picture of unthreatening economic diligence. Mainly it is because they are damned lucky.

If Sir Keir does have a magic lamp, it has been buffed to a blinding sheen. After all, it is not just the behaviour of Mr Johnson that helps Labour. Britain is suffering from a bout of economic pain in a way that particularly hurts middle-class mortgage holders, who are crucial marginal voters. Even the timing helps. Rather than a single hit, the pain will be spread out until 2024, when the general election comes due. Each quarter next year, about 350,000 households will re-mortgage and become, on average, almost £3,000 ($3,830) per year worse off, according to the Resolution Foundation. Labour strategists could barely dream of a more helpful backdrop.

Political problems that once looked intractable for Labour have solved themselves. Scotland was supposed to be a Gordian knot. How could a unionist party such as Labour tempt left-wing voters of the nationalist Scottish National Party (snp)? The police have fixed that. Nicola Sturgeon, the most talented Scottish politician of her generation, found herself arrested and quizzed over an illicit £100,000 camper van and other matters to do with party funds. The snp’s poll rating has collapsed and another 25 seats are set to fall into the Labour leader’s lap thanks to pc McPlod and (at best) erratic book-keeping by the snp.

It is not the first time police have come to Sir Keir’s aid. He promised to quit in 2022 if police fined him for having a curry and beer with campaigners during lockdown-affected local elections in 2021. Labour’s advisers were adamant no rules were broken. But police forces were erratic in dishing out penalties, veering between lax and draconian. It was a risk. Sir Keir gambled and won.

Luck will always play a large role in a first-past-the-post system that generates big changes in electoral outcomes from small shifts in voting. Margins are often tiny. Mr Corbyn came, according to one very optimistic analysis, within 2,227 votes of scraping a majority in the 2017 general election, if they had fallen in the right places. Likewise, in 2021, Labour faced a by-election in Batley and Spen, in Yorkshire. A defeat would almost certainly have triggered a leadership challenge; Labour clung on, narrowly, and so did Sir Keir. If he enters Downing Street in 2024, he will have 323 voters just outside Leeds to thank.

Sir Keir is hardly the first leader to benefit from fortune’s favour. Good ones have always needed it. Sir Tony Blair reshaped Labour and won three general elections. But he only had the job because John Smith, his predecessor, dropped dead at 55. (“He’s fat, he’s 53, he’s had a heart attack and he’s taking on a stress-loaded job” the Sun had previously written, with unkind foresight.) Without the Falklands War in 1982, Margaret Thatcher would have asked for re-election soon afterwards based on a few years of a faltering experiment with monetarism. Formidable political talent is nothing without a dash of luck.

Often the most consequential politicians are the luckiest. Nigel Farage has a good claim to be the most influential politician of the past 20 years. He should also be dead. The former leader of the uk Independence Party was run over in 1985. Then, in 1987, testicular cancer nearly killed him. In 2010, he survived a plane crash after a banner—“Vote for your country—Vote ukip”—became tangled around the plane. Smaller factors also played in Mr Farage’s favour: when he was a member of the European Parliament he was randomly allocated a seat next to the European Commission president, providing a perfect backdrop for viral speeches. (“They handed me the internet on a plate!” chortles Mr Farage.) Britain left the eu, in part, because Mr Farage is lucky.

Stop polishing that lamp, you’ll go blind

Too much good luck can be a bad thing. David Cameron gambled three times on referendums (on the country’s voting system, on Scottish independence and on Brexit). He won two heavily and lost one narrowly. Two out of three ain’t bad, but it is enough to condemn him as one of the worst prime ministers on record. “A Prince who rests wholly on fortune is ruined when she changes,” wrote Machivelli. It was right in 1516; it was right in 2016. Labour would do well to heed the lesson. It sometimes comes across as a party that expects the Conservatives to lose, rather than one thinking how best to win.

Fortune has left Labour in a commanding position. Arguments against a Labour majority rely on hope (perhaps inflation will come down sharply) not expectation. Good luck may power Labour to victory in 2024, but it will not help them govern. The last time Labour replaced the Conservatives, in 1997, the economy was flying. Now, debt is over 100% of gdp. Growth prospects are lacking, while public services are failing. It will be a horrible time to run the country. Bad luck.

‘If you work hard and succeed, you’re a loser’: can you really wing it to the top?

Forget the spreadsheets and make it up as you go along – that’s the message of leaders from Elon Musk to Boris Johnson. But is acting on instinct really a good idea? Emma Beddington in The Guardian
There are, it seems, two types of “winging it” stories. First, there are the triumphant ones – the victories pulled, cheekily, improbably, from the jaws of defeat. Like the time a historian (who prefers to remain nameless) turned up to give a talk on one subject, only to discover her hosts were expecting, and had advertised, another. “I wrote the full thing – an hour-long show – in 10 panicked minutes,” she says. “At the end, a lady came up to congratulate me on how spontaneous my delivery was.”

Then there is the other kind of winging it story – the kind that ends in ignominy. Remember the safeguarding minister, Rachel Maclean, tying herself in factually inaccurate knots when asked about stop-and-search powers? The Australian journalist Matt Doran, who interviewed Adele without listening to her album? Or the culture secretary, Nadine Dorries, claiming Channel 4 was publicly funded, then that Channel 5 had been privatised?

There are even worse examples. As a young journalist, Sarah Dempster was unwell when she was supposed to review a Meat Loaf concert, so she wrote the piece without attending. “An hour after publication, the paper called to inform me that the gig had, in fact, been cancelled. I was sacked,” she tweeted. “The Sun wrote a piece about it. The headline: ‘MEAT OAF’.”

Why does anyone wing it, and how do they dare? As a lifelong dreary prepper, I have been wondering this since reading a profile in the New York Times of winger extraordinaire Elon Musk. “To a degree unseen in any other mogul, the entrepreneur acts on whim, fancy and the certainty that he is 100% right,” it related, detailing how Musk wings even the biggest decisions, operating on gut feeling and without a business plan, rejecting expert advice.
Genius or graft? Apple founder Steve Jobs and Zhou Qunfei, China’s richest woman. Composite: Getty/Shutterstock/Guardian Design

What, I wonder, is the appeal of this strategy? And is it a legitimate – indeed, more successful – way of doing business? Can Musk, the CEO of Tesla (a company with a market capitalisation of £570bn) and the founder of SpaceX (the first private company to send humans into space) really be winging it?

Some are sceptical. “Is this self-presentation or an accurate statement?” asks Tomas Chamorro-Premuzic, an organisational psychologist and the author of Why Do So Many Incompetent Men Become Leaders? “Musk is probably way too smart to actually operate under that principle; he uses this arrogant self-presentation to his advantage. Brand Musk accounts for a big chunk of his success.” In contrast, he says, the recent Netflix SpaceX documentary shows Musk as “quite self-critical, quite humble”.

It is an idea echoed by Stefan Stern, a visiting professor at the Bayes Business School at City, University of London and the author of Myths of Management. “I can’t believe that he doesn’t draw on data; it’s a leading-edge thing he’s engaged in. When you promote yourself as a sort of visionary or hero, you absolutely want to try to claim that there’s something special about your insights – they’re not a petty, banal matter of data.” 

The implication is that Musk is like those schoolkids who claim not to have done a minute’s revision, then ace the exam. There is, the argument goes, something innately appealing about someone operating effortlessly on flair, instinct and inspiration: a Steve Jobs, not a Zhou Qunfei – the discreet founder of Lens Technology and the richest woman in China, who, Chamorro-Premuzic says, credits her success to “hard work and a relentless desire to learn”.

“There’s something romantic to the idea that there are mavericks who don’t need to work very hard,” adds Chamorro-Premuzic. “We say we value hard work and dedication, but, by definition, talent is more of an extraordinary gift and we celebrate that more.”

The leadership expert Eve Poole agrees. “No one wants to make it feel like hard work,” she says. “No one wants to say: ‘I slaved in front of a spreadsheet for 20 hours before I made that decision.’”

For Stern, Boris Johnson’s apparent penchant for winging it carries a similar message. “When he says: ‘We got the big calls right,’ he’s saying: ‘These small-minded people obsess about data and numbers and statistics, but with my instinct, my judgment, I – the uniquely gifted, insightful leader – got the big calls right.’ It’s not even true!”

His self-presentation as “a charismatic figure with panache who is apparently spontaneous” is particularly interesting, Stern says, given that “the other thing we know about Johnson is he’s not spontaneous, he doesn’t have good lines off the cuff”. (See that disastrous CBI Peppa Pig speech in November, recent prime minister’s questions performances or his testy, defensive responses in more probing interviews.)

Is there any foundation for the notion that gut feeling is superior to pedestrian, data-driven decision-making? The cognitive psychologist Gary Klein has spent his career researching intuition in decision-making; 35 years on, his research on how firefighters act swiftly under pressure in tough situations is still cited. “We weren’t looking for intuition,” he says. Rather, his team’s original theory was that firefighters might be rapidly evaluating two options when they decided how to tackle a fire. “They told us: ‘We don’t compare any options.’ More than that, they said: ‘We never make any decisions.’” Klein didn’t understand how firefighters could believe only one course of action was possible and land on it without making comparisons. 

Further digging revealed a different picture. With 15 to 20 years of experience, Klein explains, the firefighters were classifying the situation based on fires they had seen – a process known as “pattern matching”. The second step Klein called “mental simulation”: the firefighters would visualise how a course of action would run and adjust their model accordingly. “It’s a blend of intuition and analysis,” says Klein. The process was near-instantaneous. “Most decisions were made in less than a minute.”

So, what looks like winging it can, in fact, be instinctive decision-making backed up by experience – what Poole calls “really quick heuristics in your brain … synaptic connections established through years of conditioning”. Leaders who trust that, she says, “are just fucking excellent”.

This decision-making model is common in one of the areas where people are least comfortable with the idea of winging it: healthcare. No one wants to end up in the hands of a seat-of-the-pants neurosurgeon, but Klein’s research suggests medical professionals use intuitive decision-making and gut feeling as a matter of course.

His book The Power of Intuition tells the story of an experienced neonatal intensive care unit nurse accurately diagnosing a baby with sepsis just by walking past the incubator and getting a gut feeling, when a less experienced nurse who had been conscientiously tracking all the infant’s vitals had failed to spot it. “An experienced physician sees a cluster of cues and says sepsis. We’ve heard stories of someone who was just a resident; there was a tough case and they called the attending physician. The attending physician does not even enter the room and from the door just looks at the patient and sees there’s an issue and says: ‘Ah, congestive heart failure.’”
Firefighters in New York. Gary Klein’s research suggests they use ‘a blend of intuition and analysis’ to make quick decisions. Photograph: Anadolu Agency/Getty Images

The experiences that feed intuition can be less concrete. Poole has been researching what humans still have to offer in a world in which AI is ever-more powerful, such as what she calls “witch-style intuition” – that sense of foreboding when you enter a room or meet someone. “We all know we have had those feelings and we tend to discount them and think they’re a bit silly and weird,” she says. “But I think it’s probably coming from the collective historical unconscious, trying to keep us safe as a species.” There are, she says, two strands: “your own, desperately hard-earned gut feeling, laid down in templates of data and knowledge, then the spooky ephemera that you can pick up through ‘spidey sense’, which I think can still be really reliable.”

It can, but it isn’t always. Intuition of any kind is not infallible. Klein describes it as a “data point”: something to take into consideration, not to accept uncritically. One area in which intuition gives demonstrably poor outcomes is recruitment. As Chamorro-Premuzic explains, unstructured interview processes increase and reinforce conscious and unconscious biases about candidates. We all believe our own intuition to be superior, he says: “In an interview situation, this is a big problem, because hiring managers think they have an ability to see through candidates and to understand whether they are competent.” Companies will spend large budgets on diversity and inclusion, “then tell you they hire for ‘culture fit’ – and the main way to evaluate culture fit is whether somebody ‘feels right’ in a job interview. Even if managers are well-meaning and open-minded, they will gravitate towards candidates who are like them and they are comfortable with.” 

Moreover, studies show that people tend to make up their mind in the first 60 or 90 seconds, he says. This is pattern recognition gone wrong, according to Stern. When decision-makers see someone who reminds them of themselves, they think: “Oh yeah, he’s got the right stuff. I used to be like him.”

Donald Trump springs to mind here. I read Klein a typical Trump pronouncement: “I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.” It reminds Klein of two dangerous fallacies about intuition: “One, some people think intuition is innate ability, which I don’t think it is; it’s based on experience. Two, intuition is a general skill and will apply in lots of different situations. I don’t think that’s true.” Having decent intuition in an area where you have professional experience – “like real estate”, he says, pointedly – does not mean you have a transferable skill.

Talking to people who admit to winging it reveals that, mainly, they mean the “good” kind of intuition: calling on a wealth of relevant experience and deploying it in defined circumstances. That often involves an element of performance, where spontaneity can be the secret ingredient.

Susannah, who works in publishing, says: “I love to wing it in sales presentations. When I wing it, I suddenly find a new angle; it works every time. But only, I think, because I’m winging stuff I already know deeply.” Kathy, a senior financial services strategist, says: “If it’s something I don’t know at all, I won’t wing it, but in my area of expertise I’m the queen of prep five minutes before the meeting.”

These are the good wingers, but of course the bad ones are out there – the lazy, the grandiose blaggers and the bullshitters, too often in positions of power. “There are a lot of men, particularly, who do that,” says Poole. “I think it does appeal to people who don’t feel anything any more – it’s all so boring and that’s the way they get some feelings. It gives them a massive adrenaline rush; it makes them feel very powerful and victorious.” It is not usually a successful long-term strategy, she adds, comfortingly; what Chamorro-Premuzic calls “the sense of Teflon-style immunity” betrays them eventually. “I just think you get caught out. It’s the spin of the wheel and that’s why I hate it: it’s so risky for your organisation.”

But we still admire them, buy their products, even vote for them. Why do we fall for it? It is a lack of “followership maturity”, according to Chamorro-Premuzic, and varies from culture to culture. “I grew up in South America, where if you work hard and you succeed you’re automatically a loser,” he says. “Whereas if you bullshit and deceive people, we should worship you. There are cultures that truly value self-improvement, hard work and knowledge and there are cultures that value confidence.”

A country that wants to be entertained, he says, is likely to apply low standards for leadership, preferring self-belief to caution and hard work. “Whether it’s Trump, Boris, Steve Jobs, Elon Musk – they celebrate them because they challenge the establishment. When they behave in anarchic ways, disrespecting the rules, I think they can channel the anger that people have.” The kicker is that we assume there’s some competence behind the blagging and bluster, that the emperor is fully clothed. But how do we work out if it is true: spreadsheet or gut? 

Luck Comes when you have a Great Attitude

 

Bright star to black hole: the rise and fall of fund manager Neil Woodford

Rupert Neate in The Guardian

He was, the BBC declared in 2015, “the man who can’t stop making money”. He was the rock star of pensions and fund management, awarded a CBE for his services to the economy. But now, since Neil Woodford stopped investors from withdrawing their own money from his flagship fund, he is in the spotlight for all the wrong reasons.

His Woodford Equity Income Fund holds the pension savings and investments of tens of thousands of people. But it has been performing so badly that investors were withdrawing money at the rate of £10m a day.

-----Also read
It can be Hard to tell Luck from Judgment
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Last week, after 23 consecutive months in which withdrawals from the fund had been greater than the new money coming in, Woodford found he couldn’t realise cash quickly enough to meet the withdrawal requests – at least at a decent price. He closed the fund to withdrawals, leaving legions of investors angry and in limbo for 28 days.

In a YouTube video he posted on Wednesday to finally apologise to investors, he looked anything but the archetypal City fund manager, with his close-cropped hair and trademark casual jumper rather than suit and tie. In the video, filmed at his fund’s headquarters on an industrial estate near Oxford, Woodford said: “I’m extremely sorry that we’ve had to take this decision. We understand our investors’ frustration. All I can say in response to that is that this decision was motivated by your interests.”

Woodford said he had been forced to “gate” the fund because so many big investors were trying to pull money out that he wasn’t able to meet the demand. His funds hold unusually big stakes in smaller and early stage unlisted companies, which are hard to sell quickly.

The final straw had been Kent county council pension fund’s request to take out its £263m holding. The trustees of Kent’s pension fund – who had been trying to stem the losses Woodford had racked up for its 110,000 members – decided to pull out when it emerged at the end of last month that the flagship fund had shrunk by £560m to £3.77bn in just four weeks. At its peak the fund was worth more than £10bn.

Of the £560m lost, just under £190m was made up of withdrawals. The rest – more than £370m – represented yet further declines in the value of the investments held in the fund, which at the end of April was made up of stakes in 101 companies ranging from housebuilders such as Barratt Developments and Taylor Wimpey to logistics business Eddie Stobart and a large number of esoteric healthcare firms.

Under EU rules aimed at ensuring that funds which hold unquoted – and therefore potentially hard-to-sell – shares can retain their stability, these shares are permitted to make up no more than 10% of the portfolio. Woodford got around those rules, quite legally, by putting some of them into his separate, quoted Patient Capital investment trust – and taking Patient Capital shares into the main fund. He also listed some of them of the Guernsey stock exchange.

But the Kent fund had left it just too late: instead of getting its cash back, its request triggered Woodford’s suspension of trading in the fund.

The video apology, in which Woodford set and answered his own questions, followed months during which he had been dismissing the concerns of investors and financial experts about his fund’s prolonged poor performance.

In February, his Woodford Equity Income Fund was listed for the first time on a “Spot the Dog” list compiled by Bestinvest, which highlights underperforming “dog” funds. Bestinvest criticised some of his worst investments and described the fund as “a Great Dane-sized” new entrant to its list.

Just a few weeks later, Woodford told the Financial Times that the investors who were pulling out were making “appallingly bad decisions”, influenced by “a mountain of fake information and fake analysis” that “pisses me off”.

Neil Woodford apologises to investors in a still from his YouTube video last week. Photograph: Woodford Investment Management/PA

In December 2017 he said in an interview that they key to successful investing was to “have a sufficiently strong arrogant gene to back your judgment, back your conviction”.

That arrogance is now provoking widespread anger, not just from his investors but also among other fund managers, who say Woodford has tarred the whole industry with the same loss-making brush.

Last Wednesday the Financial Conduct Authority, the City’s watchdog, said it was considering a formal investigation into the fund, and the following day, Bank of England governor Mark Carney told an audience in Tokyo that funds such as Woodford’s (although he died not name him) needed closer scrutiny to lessen the risk of fire sales triggering market disruption. The Bank, he said, would start stress-testing funds to ensure they couldn’t threaten a system-wide crisis.

This is a staggering fall from grace for Woodford, who had been one of the UK’s very best and most reliable stock pickers. Anyone who invested £10,000 at the start of his quarter-of-a-century career at Invesco Perpetual would have seen their money grow to almost £250,000 by the time he left.

Mark Dampier, director of research at stockbroker Hargreaves Lansdown, declared in 2015 that Woodford was “arguably the best fund manager of his generation”. Just weeks ago, despite the growing cloud surrounding Woodford, Hargreaves told its clients “we retain our conviction in him to deliver excellent long-term performance” and reminded them that he had “built his career by investing against the herd” and “shown an ability to get the big calls right”.

Hargreaves’s customers had £2bn invested with Woodford at the end of March – roughly a fifth of all the money in his three big funds.

Only when the fund was gated did Hargreaves, which has heavily promoted Woodford at discounted fees, finally drop Woodford Equity Income from its influential “Wealth 50” list of favourite funds, which it marketed to its more than a million clients.

FacebookTwitterPinterest Bank of England governor Mark Carney has suggested that funds such as Woodford’s need more scrutiny. Photograph: Hannah McKay/Reuters

Asked if he regretted his support for Woodford and the controversial discount fee structure, Dampier said: “Our aim is to enable our clients to choose the best-in-class funds at lower fees. Our favourite fund choices have, for the most part, beaten their sector averages and benchmarks. Not every fund has, and we share our clients’ disappointment and frustration when they don’t.”

Other big backers have also deserted Woodford. St James’s Place last week took its clients’ £3.5bn to another manager. On Thursday another supporter, Openworks, did the same with its £330m.

Woodford fell into fund management by accident. He had never even heard of the business until he rocked up in London in the 1980s, sleeping on his brother’s floor while looking for a job. He had left school wanting to fly fighter jets but couldn’t pass the RAF’s aptitude test, and instead read agricultural economics at the University of Exeter.

In 1988 he joined Invesco Perpetual and built a reputation as a brilliant contrarian investor. When others piled into dotcom shares at the turn of the century, he decided against, and backed more traditional companies. He made huge gains when the dotcom crash came. He eschewed banking stocks before the financial crisis – and avoided that crash too.

He held big stakes in giant companies, whose chief executives needed to retain his support. In 2012 his criticism of AstraZeneca chief executive David Brennan was widely regarded to have cost Brennan his job, and his criticism of BAE’s attempted £28bn merger with Airbus was seen as one of the reasons the deal collapsed.

In 2014, feeling that he had outgrown Invesco Perpetual, where he personally managed some £25bn of funds, he set up his own firm, Woodford Investment Management. Within two weeks of launching, he had raised £1.6bn, a UK record, and this quickly grew to £16bn. In its first year, his flagship fund made a 16% return and Woodford, a devotee of veteran US investor Warren Buffett, was called the “Oracle of Oxford”.

FacebookTwitterPinterest Woodford is a keen student of the US investor Warren Buffett. Photograph: Andrew Harnik/AP

But since then things have turned sour. Over the past four years, investors in Woodford Equity Income have collected a return of less than 1% – compared with 29% for the market as a whole. Over that same four-year period, Woodford has paid himself some £63m.

In the 2017-18 financial year alone, which was a dreadful period for his funds, Woodford Investment Management paid a £36.5m dividend to a company called Woodford Capital. Woodford holds 65% of that firm, and his business partner Craig Newman has the remaining 35%.

Woodford, who has spoken out against the huge bonuses awarded to other fund managers, and to the bosses of companies he has invested in, declined to answer any questions about his own pay, or to elaborate, beyond his YouTube video, on the fund’s tricky situation.

The firm’s public relations officer asked the Observer to point out that Woodford had donated some of his pay to charity. But he was unable to state how much money had been donated, or to which causes. The PR person declined to comment when asked whether Woodford would consider pumping any of his personal millions back into the fund.

Those who know Woodford say he is “decidedly unflashy” and that it is “difficult to fathom where all that money goes”. Well, a lot of it appears to go on horses. He and his wife Madelaine have a few dozen top showjumpers training at a vast equestrian complex near their home in the Cotswolds.

The house, near Tetbury, was built on land the Woodfords bought for nearly £14m in 2013. They moved to the Cotswolds after a planning application to construct a dressage arena and 28-horse stabling block near their previous estate, in Buckinghamshire, was rejected following a row with neighbours. One of those neighbours, the BBC’s Jeremy Paxman, described Woodford’s planned addition as “enormous, unsightly and environmentally unfriendly”.

The Tetbury venue, however, got the planners’ green light and includes a full-size manège (dressage arena). Woodford, who came to the sport only after meeting Madelaine – a keen rider whom he married in 2015 – has put in the hours at the manège and now often takes part in eventing competitions on a bay gelding called Willows Spunky. 

Woodford’s other passions are fast cars and racing bicycles. He starts up the Porsche at 5am every weekday to drive to his fund’s minimalist offices on an industrial estate in Cowley, Oxford. At weekends he drives it down to the couple’s £6.3m glass-walled holiday home in Salcombe, Devon.

Woodford’s huge pay and luxury lifestyle haven’t gone unnoticed by his investors, many of whom are relying on him to be a safe pair of hands and to increase the value of their retirement or rainy day fund.

A comment on his YouTube video, by someone with the username Platoreads: “Arrogance, Incompetence, Complacency and greed: your name is Woodford! You have failed, Neil. Return the funds to your investors (including that £37m bonus you pocketed this year despite a disastrous performance in all three funds).”

Luke Hilyard of the High Pay Centre said: “This particular instance of an investor making tens of millions while losing money for ordinary savers raises questions about the governance of the funds and platforms channelling other people’s money into Woodford’s fund, and the regulatory oversight of the process.

“The case is also a microcosm of our wider business culture and economic system, where superstar managers in investment, banking, retail, commodities and other industries have been treated like gods and rewarded accordingly, yet ultimately have shown themselves to be highly fallible mortals whose success was always partly contingent on timing and luck.”

Woodford, who made his name at Invesco by backing big companies, but then switched to a new strategy of investing in smaller and unquoted companies in his own funds, has now pledged to change direction.

In his video he said he would now be targeting bigger companies, especially FTSE 100 stocks – even though only a few weeks ago he was insisting that his approach was the correct one and that the best investment opportunities were “absolutely not” in large companies.
Big bad bets

Woodford bought big stakes in many companies that performed very poorly. They include:
• Kier (construction) -74% in 12 months; Woodford funds own 20%
• Circassia (biotech) -74%; Woodford owns 28.5%
• Prothena (biotech) -36%; Woodford owns 29.9%
• Stobart Group -46%; Woodford owns 18.8%
• Redde (support services) -39%; Woodford owns 28%
• Allied Minds (technology) -31%; Woodford owns 27%
• Spire Healthcare -51%; Woodford owns 5%
• Utilitywise, energy broker that collapsed in Feb 2019; Woodford owned 29%

What Woodford investors say:
“I invested £60,000 three years ago and have lost over 20%. Luckily I sold nearly half my investment the week before the fund closed. I’m going to hold my remaining units until after Brexit as a high-risk bet.”
Simon, 51, Brighton

“I‘m getting married on 10 August and we’ve been saving for over two years. My final bill to the venue and suppliers is due at the start of July. If I can’t withdraw my money I’m going to be looking to beg, borrow or steal until I can get it released.”
James M, 28, Newcastle

“I inherited some money, and chose on a stocks and shares Isa, following suggestions from Hargreaves Lansdown, then watched the value dwindle. On 31 May I decided to take the hit and sell. The deal was shown as “pending” until Wednesday morning, but that disappeared and I was told I wouldn’t be able to sell my units. I don’t think I’ll be getting much back when trading opens again.”
Sally Williams, 53, London

‘Socialism for the rich’: the evils of bad economics

The economic arguments adopted by Britain and the US in the 1980s led to vastly increased inequality – and gave the false impression that this outcome was not only inevitable, but good writes Jonathan Aldred in The Guardian


In most rich countries, inequality is rising, and has been rising for some time. Many people believe this is a problem, but, equally, many think there’s not much we can do about it. After all, the argument goes, globalisation and new technology have created an economy in which those with highly valued skills or talents can earn huge rewards. Inequality inevitably rises. Attempting to reduce inequality via redistributive taxation is likely to fail because the global elite can easily hide their money in tax havens. Insofar as increased taxation does hit the rich, it will deter wealth creation, so we all end up poorer. 

One strange thing about these arguments, whatever their merits, is how they stand in stark contrast to the economic orthodoxy that existed from roughly 1945 until 1980, which held that rising inequality was not inevitable, and that various government policies could reduce it. What’s more, these policies appear to have been successful. Inequality fell in most countries from the 1940s to the 1970s. The inequality we see today is largely due to changes since 1980.

In both the US and the UK, from 1980 to 2016, the share of total income going to the top 1% has more than doubled. After allowing for inflation, the earnings of the bottom 90% in the US and UK have barely risen at all over the past 25 years. More generally, 50 years ago, a US CEO earned on average about 20 times as much as the typical worker. Today, the CEO earns 354 times as much.

Any argument that rising inequality is largely inevitable in our globalised economy faces a crucial objection. Since 1980 some countries have experienced a big increase in inequality (the US and the UK); some have seen a much smaller increase (Canada, Japan, Italy), while inequality has been stable or falling in others (France, Belgium and Hungary). So rising inequality cannot be inevitable. And the extent of inequality within a country cannot be solely determined by long-run global economic forces, because, although most richer countries have been subject to broadly similar forces, the experiences of inequality have differed.

The familiar political explanation for this rising inequality is the huge shift in mainstream economic and political thinking, in favour of free markets, triggered by the elections of Ronald Reagan and Margaret Thatcher. Its fit with the facts is undeniable. Across developed economies, the biggest rise in inequality since 1945 occurred in the US and UK from 1980 onwards.

The power of a grand political transformation seems persuasive. But it cannot be the whole explanation. It is too top-down: it is all about what politicians and other elites do to us. The idea that rising inequality is inevitable begins to look like a convenient myth, one that allows us to avoid thinking about another possibility: that through our electoral choices and decisions in daily life we have supported rising inequality, or at least acquiesced in it. Admittedly, that assumes we know about it. Surveys in the UK and US consistently suggest that we underestimate both the level of current inequality and how much it has recently increased. But ignorance cannot be a complete excuse, because surveys also reveal a change in attitudes: rising inequality has become more acceptable – or at least, less unacceptable – especially if you are not on the wrong end of it.

Inequality is unlikely to fall much in the future unless our attitudes turn unequivocally against it. Among other things, we will need to accept that how much people earn in the market is often not what they deserve, and that the tax they pay is not taking from what is rightfully theirs.

One crucial reason why we have done so little to reduce inequality in recent years is that we downplay the role of luck in achieving success. Parents teach their children that almost all goals are attainable if you try hard enough. This is a lie, but there is a good excuse for it: unless you try your best, many goals will definitely remain unreachable.

Ignoring the good luck behind my success helps me feel good about myself, and makes it much easier to feel I deserve the rewards associated with success. High earners may truly believe that they deserve their income because they are vividly aware of how hard they have worked and the obstacles they have had to overcome to be successful.

But this is not true everywhere. Support for the idea that you deserve what you get varies from country to country. And in fact, support for such beliefs is stronger in countries where there seems to be stronger evidence that contradicts them. What explains this?

Attitude surveys have consistently shown that, compared to US residents, Europeans are roughly twice as likely to believe that luck is the main determinant of income and that the poor are trapped in poverty. Similarly, people in the US are about twice as likely as Europeans to believe that the poor are lazy and that hard work leads to higher quality of life in the long run.

 

Ronald Reagan and Margaret Thatcher in 1988. Photograph: Reuters

Yet in fact, the poor (the bottom 20%) work roughly the same total annual hours in the US and Europe. And economic opportunity and intergenerational mobility is more limited in the US than in Europe. The US intergenerational mobility statistics bear a striking resemblance to those for height: US children born to poor parents are as likely to be poor as those born to tall parents are likely to be tall. And research has repeatedly shown that many people in the US don’t know this: perceptions of social mobility are consistently over-optimistic.

European countries have, on average, more redistributive tax systems and more welfare benefits for the poor than the US, and therefore less inequality, after taxes and benefits. Many people see this outcome as a reflection of the different values that shape US and European societies. But cause-and-effect may run the other way: you-deserve-what-you-get beliefs are strengthened by inequality.

Psychologists have shown that people have motivated beliefs: beliefs that they have chosen to hold because those beliefs meet a psychological need. Now, being poor in the US is extremely tough, given the meagre welfare benefits and high levels of post-tax inequality. So Americans have a greater need than Europeans to believe that you deserve what you get and you get what you deserve. These beliefs play a powerful role in motivating yourself and your children to work as hard as possible to avoid poverty. And these beliefs can help alleviate the guilt involved in ignoring a homeless person begging on your street.

This is not just a US issue. Britain is an outlier within Europe, with relatively high inequality and low economic and social mobility. Its recent history fits the cause-and-effect relationship here. Following the election of Margaret Thatcher in 1979, inequality rose significantly. After inequality rose, British attitudes changed. More people became convinced that generous welfare benefits make poor people lazy and that high salaries are essential to motivate talented people. However, intergenerational mobility fell: your income in Britain today is closely correlated with your parents’ income.

If the American Dream and other narratives about everyone having a chance to be rich were true, we would expect the opposite relationship: high inequality (is fair because of) high intergenerational mobility. Instead, we see a very different narrative: people cope with high inequality by convincing themselves it is fair after all. We adopt narratives to justify inequality because society is highly unequal, not the other way round. So inequality may be self-perpetuating in a surprising way. Rather than resist and revolt, we just cope with it. Less Communist Manifesto, more self-help manual.

Inequality begets further inequality. As the top 1% grow richer, they have more incentive and more ability to enrich themselves further. They exert more and more influence on politics, from election-campaign funding to lobbying over particular rules and regulations. The result is a stream of policies that help them but are inefficient and wasteful. Leftwing critics have called it “socialism for the rich”. Even the billionaire investor Warren Buffett seems to agree: “There’s been class warfare going on for the last 20 years and my class has won,” he once said.

This process has been most devastating when it comes to tax. High earners have most to gain from income tax cuts, and more spare cash to lobby politicians for these cuts. Once tax cuts are secured, high earners have an even stronger incentive to seek pay rises, because they keep a greater proportion of after-tax pay. And so on.

Although there have been cuts in the top rate of income tax across almost all developed economies since 1979, it was the UK and the US that were first, and that went furthest. In 1979, Thatcher cut the UK’s top rate from 83% to 60%, with a further reduction to 40% in 1988. Reagan cut the top US rate from 70% in 1981 to 28% in 1986. Although top rates today are slightly higher – 37% in the US and 45% in the UK – the numbers are worth mentioning because they are strikingly lower than in the post-second-world-war period, when top tax rates averaged 75% in the US and were even higher in the UK.

Some elements of the Reagan-Thatcher revolution in economic policy, such as Milton Friedman’s monetarist macroeconomics, have subsequently been abandoned. But the key policy idea to come out of microeconomics has become so widely accepted today that it has acquired the status of common sense: that tax discourages economic activity and, in particular, income tax discourages work.

This doctrine seemingly transformed public debate about taxation from an endless argument over who gets what, to the promise of a bright and prosperous future for all. The “for all” bit was crucial: no more winners and losers. Just winners. And the basic ideas were simple enough to fit on the back of a napkin.

One evening in December 1974, a group of ambitious young conservatives met for dinner at the Two Continents restaurant in Washington DC. The group included the Chicago University economist Arthur Laffer, Donald Rumsfeld (then chief of staff to President Gerald Ford), and Dick Cheney (then Rumsfeld’s deputy, and a former Yale classmate of Laffer’s).

While discussing Ford’s recent tax increases, Laffer pointed out that, like a 0% income tax rate, a 100% rate would raise no revenue because no one would bother working. Logically, there must be some tax rate between these two extremes that would maximise tax revenue. Although Laffer does not remember doing so, he apparently grabbed a napkin and drew a curve on it, representing the relationship between tax rates and revenues. The Laffer curve was born and, with it, the idea of trickle-down economics.

The key implication that impressed Rumsfeld and Cheney was that, just as tax rates lower than 100% must raise more revenue, cuts in income tax rates more generally could raise revenue. In other words, there could be winners, and no losers, from tax cuts. But could does not mean will. No empirical evidence was produced in support of the mere logical possibility that tax cuts could raise revenue, and even the economists employed by the incoming Reagan administration six years later struggled to find any evidence in support of the idea.

 

George Osborne, who lowered the UK’s top rate of tax from 50% to 45% in 2013. Photograph: Matt Cardy/PA

Yet it proved irresistible to Reagan, the perennial optimist, who essentially overruled his expert advisers, convinced that the “entrepreneurial spirit unleashed by the new tax cuts would surely bring in more revenue than his experts imagined”, as the historian Daniel T Rodgers put it. (If this potent brew of populist optimism and impatience with economic experts seems familiar today, that might be explained in part by the fact that Laffer was also a campaign adviser to Donald Trump.)

For income tax cuts to raise tax revenue, the prospect of higher after-tax pay must motivate people to work more. The resulting increase in GDP and income may be enough to generate higher tax revenues, even though the tax rate itself has fallen. Although the effects of the big Reagan tax cuts are still disputed (mainly because of disagreement over how the US economy would have performed without the cuts), even those sympathetic to trickle-down economics conceded that the cuts had negligible impact on GDP – and certainly not enough to outweigh the negative effect of the cuts on tax revenues.

But the Laffer curve did remind economists that a revenue-maximising top tax rate somewhere between 0% and 100% must exist. Finding the magic number is another matter: the search continues today. It is worth a brief dig into this research, not least because it is regularly used to veto attempts to reduce inequality by raising tax on the rich. In 2013, for example, the UK chancellor of the exchequer George Osborne reduced the top rate of income tax from 50% to 45%, arguing Laffer-style that the tax cut would lead to little, if any, loss of revenue. Osborne’s argument relied on economic analysis suggesting that the revenue-maximising top tax rate for the UK is about 40%.

Yet the assumptions behind this number are shaky, as most economists involved in producing such figures acknowledge. Let’s begin with the underlying idea: if lower tax rates raise your after-tax pay, you are motivated to work more. It seems plausible enough but, in practice, the effects are likely to be minimal. If income tax falls, many of us cannot work more, even if we wanted to. There is little opportunity to get paid overtime, or otherwise increase our paid working hours, and working harder during current working hours does not lead to higher pay. Even for those who have these opportunities, it is far from clear that they will work more or harder. They may even decide to work less: since after-tax pay has risen, they can choose to work fewer hours and still maintain their previous income level. So the popular presumption that income tax cuts must lead to more work and productive economic activity turns out to have little basis in either common sense or economic theory.

There are deeper difficulties with Osborne’s argument, difficulties not widely known even among economists. It is often assumed that if the top 1% is incentivised by income tax cuts to earn more, those higher earnings reflect an increase in productive economic activity. In other words, the pie gets bigger. But some economists, including the influential Thomas Piketty, have shown this was not true for CEOs and other top corporate managers following the tax cuts in the 1980s. Instead, they essentially funded their own pay rises by paying shareholders less, which led in turn to lower dividend tax revenue for the government. In fact, Piketty and colleagues have argued that the revenue-maximising top income tax rate may be as high as 83%.

The income tax cuts for the rich of the past 40 years were originally justified by economic arguments: Laffer’s rhetoric was seized upon by politicians. But to economists, his ideas were both familiar and trivial. Modern economics provides neither theory nor evidence proving the merit of these tax cuts. Both are ambiguous. Although politicians can ignore this truth for a while, it suggests that widespread opposition to higher taxes on the rich is ultimately based on reasons beyond economics.

When the top UK income tax rate was raised to 50% in 2009 (until Osborne cut it to 45% four years later) the composer Andrew Lloyd Webber, one of Britain’s wealthiest people, responded bluntly: “The last thing we need is a Somali pirate-style raid on the few wealth creators who still dare to navigate Britain’s gale-force waters.” In the US, Stephen Schwarzman, CEO of private equity firm Blackstone, likened proposals to remove a specialised tax exemption to the German invasion of Poland.

While we may scoff at these moans from the super-rich, most people unthinkingly accept the fundamental idea behind them: that income tax is a kind of theft, taking income which is rightfully owned by the person who earned it. It follows that tax is, at best, a necessary evil, and so should be minimised as far as possible. On these grounds, the 83% top tax rate discussed by Piketty is seen as unacceptable.

There is an entire cultural ecosystem that has evolved around the idea of tax-as-theft, recognisable today in politicians’ talk about “spending taxpayers’ money”, or campaigners celebrating “tax freedom day”. This language exists outside the world of politics, too. Tax economists, accountants and lawyers refer to the so-called “tax burden”.

But the idea that you somehow own your pre-tax income, while obvious, is false. To begin with, you could never have ownership rights prior to, or independent from, taxation. Ownership is a legal right. Laws require various institutions, including police and a legal system, to function. These institutions are financed through taxation. The tax and the ownership rights are effectively created simultaneously. We cannot have one without the other.

FacebookTwitterPinterest ‘There’s been class warfare going on for the last 20 years, and my class has won’ … US billionaire Warren Buffett. Photograph: Kevin Lamarque/Reuters

However, if the only function of the state is to support private ownership rights (maintaining a legal system, police, and so on), it seems that taxation could be very low – and any further taxation on top could still be seen as a form of theft. Implicit in this view is the idea of incomes earned, and so ownership rights created, in an entirely private market economy, with the state entering only later, to ensure these rights are maintained. Many economics textbooks picture the state in this way, as an add-on to the market. Yet this, too, is a fantasy.

In the modern world, all economic activity reflects the influence of government. Markets are inevitably defined and shaped by government. There is no such thing as income earned before government comes along. My earnings partly reflect my education. Earlier still, the circumstances of my birth and my subsequent health reflects the healthcare available. Even if that healthcare is entirely “private”, it depends on the education of doctors and nurses, and the drugs and other technologies available. Like all other goods and services, these in turn depend on the economic and social infrastructure, including transport networks, communications systems, energy supplies and extensive legal arrangements covering complex matters such as intellectual property, formal markets such as stock exchanges, and jurisdiction across national borders. Lord Lloyd-Webber’s wealth depends on government decisions about the length of copyright on the music he wrote. In sum, it is impossible to isolate what is “yours” from what is made possible, or influenced, by the role of government.

Talk of taxation as theft turns out to be a variation on the egotistical tendency to see one’s success in splendid isolation, ignoring the contribution of past generations, current colleagues and government. Undervaluing the role of government leads to the belief that if you are smart and hard-working, the high taxes you endure, paying for often wasteful government, are not a good deal. You would be better off in a minimal-state, low-tax society.

One reply to this challenge points to the evidence on the rich leaving their home country to move to a lower tax jurisdiction: in fact, very few of them do. But here is a more ambitious reply from Warren Buffett: “Imagine there are two identical twins in the womb … And the genie says to them: ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be born in the United States?’ … The people who say: ‘I did it all myself’ … believe me, they’d bid more to be in the United States than in Bangladesh.” 

Much of the inequality we see today in richer countries is more down to decisions made by governments than to irreversible market forces. These decisions can be changed. However, we have to want to control inequality: we must make inequality reduction a central aim of government policy and wider society. The most entrenched, self-deluding and self-perpetuating justifications for inequality are about morality, not economy. The great economist John Kenneth Galbraith nicely summarised the problem: “One of man’s oldest exercises in moral philosophy … is the search for a superior moral justification for selfishness. It is an exercise which always involves a certain number of internal contradictions and even a few absurdities. The conspicuously wealthy turn up urging the character-building value of privation for the poor.”

It can be Hard to tell Luck from Judgment

Randomness often explains the difference between triumph and failure writes Tim Harford in The FT 


It hasn’t been a great couple of years for Neil Woodford — and it has been just as miserable for the people who have entrusted money to his investment funds. Mr Woodford was probably the most celebrated stockpicker in the UK, but recently his funds have been languishing. Piling on the woes, Morningstar, a rating agency, downgraded his flagship fund this week. What has happened to the darling of the investment community? 

Mr Woodford isn’t the only star to fade. Fund manager Anthony Bolton is an obvious parallel. He enjoyed almost three decades of superb performance, retired, then returned to blemish his record with a few miserable years investing in China. 

The story of triumph followed by disappointment is not limited to investment. Think of Arsène Wenger, for a few years the most brilliant manager in football, and then an eternal runner-up. Or all the bands who have struggled with “difficult second-album syndrome”. 

There is even a legend that athletes who appear on the cover of Sports Illustrated are doomed to suffer the “SI jinx”. The rise to the top is followed by the fall from grace. 

There are three broad explanations for these tragic career arcs. Our instinct is to blame the individual. We assume that Mr Woodford lost his touch and that Mr Wenger stopped learning. That is possible. Successful people can become overconfident, or isolated from feedback, or lazy. 

But an alternative possibility is that the world changed. Mr Wenger’s emphasis on diet, data and the global transfer market was once unusual, but when his rivals noticed and began to follow suit, his edge disappeared. In the investment world — and indeed, the business world more broadly — good ideas don’t work forever because the competition catches on. 

The third explanation is the least satisfying: that luck was at play. This seems implausible at first glance. Could luck alone have brought Mr Wenger three Premier League titles? Or that Mr Bolton was simply lucky for 28 years? Do we really live in such an impossibly random universe? 

Perhaps we do. Michael Blastland’s recent book, The Hidden Half, argues that much of the variation we see in the world around us is essentially mysterious. Mr Blastland’s opening example is the marmorkrebs, a kind of crayfish that reproduces parthenogenetically — that is, marmorkrebs lay eggs without mating and those eggs develop into clones of their mothers. 

Place two clones into two identical fish tanks and feed them identical food. These genetically identical creatures raised in apparently identical environments produce genetically identical offspring who nevertheless vary dramatically in their size, form, lifespan, fecundity, and behaviour. Sometimes things turn out very differently for no reason that we can discern. We might as well call that reason “luck” as anything else. 

This is not to say that skill doesn’t matter — merely that in a competition in which all the leaders are highly skilled, randomness may explain the difference between triumph and failure. Good luck plus skill beats bad luck plus skill any time. 

It is easy to underestimate how much chance is at play all around us. The psychologist Daniel Kahneman has recently been studying what he calls “noise”: the variability of judgments for no obvious reason. 

A wine expert blind-tasting two glasses from the same bottle will often rate them differently. Pathologists disagree with each other in their judgments of the same biopsy. More disconcertingly, they also disagree with their own prior judgments of the case. 

We rarely appreciate just how much inconsistency there is in the judgments we and others make, argues Prof Kahneman. It can hardly be a surprise, then, if past performance is no guarantee of future success. 

We should remember, too, that people often achieve outsized success by taking risks or being contrarian. When John Kay examined the forecasting record of economists in the 1990s, he noted that Patrick Minford, an idiosyncratic forecaster, would often produce the best forecast one year and the worst forecast the next. If the consensus is wrong, being an outlier gives you a high chance both of dramatic success and spectacular failure. 

We perceive all this randomness through a particular filter, too. Few people make the cover of Sports Illustrated after a run of mediocre luck. They appear after things have been going well, and if the good luck fails to hold then it seems like the SI jinx. More likely it is “regression to the mean”, or in simple terms, a return to business as usual. 

We begin paying attention only when someone is producing a remarkable performance. Genius followed by mediocrity is a story arc we all notice. Mediocrity followed by genius just looks like genius — assuming the mediocre performer gets a second chance. Not all do. 

So I wish Mr Woodford well. Perhaps he has lost his touch, perhaps the world has changed, or perhaps he has simply been unlucky. It would be nice to know which, but in such matters the world does not always satisfy our curiosity.

The magical thinking that misleads managers

A handy guide to sorcery and superstitions in modern leadership

ANDREW HILL in the FT

It has been a while since a UK company was accused of sorcery. 

Congratulations, then, to evolutionary biologist Sally Le Page for triggering just such a charge last week. She blogged her astonishment that many of the country’s biggest water companies had blithely admitted to using dowsing rods to help locate pipes and leaks. Another scientist has dismissed the technique as witchcraft. 

The water suppliers themselves have been rowing back fast. Some engineers were part-time diviners, apparently, but the real hard work of leak detection was backed by drones, robots and lots and lots of science. 

I say let us allow the water industry’s warlocks to indulge their medieval pastimes. After all, there are plenty of examples of modern management and leadership based on superstition, credulity and blind faith. Here are just a few: 

Numerology. In China, mumbo-jumbo about feng shui and ominous or propitious flotation dates, trading symbols and stock codes often influences how supposedly sophisticated companies arrange their affairs. Elements of Alibaba’s 2014 listing appeared to revolve around the “lucky” number eight, for example. 

But before western chief executives scoff, they should consider how much they are still in thrall to the cult described in Alex Berenson’s 2003book The Number — the quarterly earnings consensus they conspire with analysts and investors to hit, or better still, to beat. Regular evidence — recently, for instance, from Campbell Soup (a miss), and Home Depot (a “beat”) — suggests the cult is thriving. 

Indeed, the availability and crunchability of Big Data have broadened disciples of the number. They now include company bosses who worship near-term, data-driven answers, rather than holding out for better, if messier, longer-term solutions that take account of human intuition. 

As the veteran management thinker Charles Handy pointed out in a rousing closing address to the recent Drucker Forum, “if the organisation were purely digitised . . . it would be a very dreary place, a prison for the human soul”. 

Leaps of faith. Any chief executive who has ever announced a corporate vision without a clear idea of the kinds of steps needed to achieve the goal is at least partly guilty of magical thinking. 

Richard Rumelt wrote in Good Strategy/Bad Strategy about the dangerous delusion that aiming for success can lead to success: “I would not care to fly in an aircraft designed by people who focused only on an image of a flying aeroplane and never considered modes of failure.” 

Throw a coin and make a wish. Modern companies still close their eyes to evidence suggesting bonuses are at best a blunt incentive, and chuck cash at staff in the hope that it will help them reach their heart’s desire. At least wishing wells swallow the donation with no adverse consequence, other than the loss of your penny. Unfettered bonus culture, as the worst excesses of the financial crisis suggest, can backfire in unexpected ways. 

Chants and mantras. Slavishly applied governance codes and regulations help box-ticking compliance staff and board members sleep easy, by absolving them of the need to make difficult judgments. Meaningless mission statements give executives a mantra to recite as cover for not actually putting their values into practice. 

Human sacrifice. Restructurings and lay-offs are the modern ritual for appeasing the gods (but without the benefits of bringing the community together for a bit of a celebration). 

Hero worship. For all the modish talk of flat hierarchies and distributed leadership, chief executives still become the central figures in a myth that is largely of their own creation. 

The most dangerous part of this self-delusion is that they believe success was achieved entirely through their “skill, preparation and tenacity”, as described by Jim Collins and Morten Hansen in Great by Choice. 

The researchers found successful leaders could generate a greater “return on luck” by being more disciplined at exploiting opportunities and riding bad luck to make themselves stronger. But they pointed out there was a fine line between the best leaders and those who put their organisations at risk through an exaggerated and dangerous belief in their own powers. Such leaders had a tendency to make these sorts of assertions: “Luck played no role in my success — I’m just really good.” 

Here is where humble deference to unpredictable and poorly understood outside forces would be healthy. If nothing else, over-confident leaders should be reminded that their destiny is sometimes out of their hands.

Success and Luck: good fortune and the myth of meritocracy

Prof. Robert Frank

The 100-year-old couple – still married, still going strong

Paul Laity in The Guardian

We don’t know anyone else over 100. We are really oddities: two people married for 78 years, one 103, the other 100. We’ve outlived everybody. And it’s rare, I recognise that. We’re very lucky. The best I can wish you is our luck.”




Morrie Markoff is sitting on the sofa in his downtown Los Angeles apartment next to his wife, Betty. They are delighted that someone from the “Manchester Guardian” has come to talk to them, though these days they are used to a degree of attention. When Morrie was 100, a gallery in the city put on his first art show, exhibiting his scrap-metal sculptures, photographs and paintings. “Ease up on the 100 business,” he remarked at the time. “I’m trying to pass as 90.” Now the Markoffs are to appear in Aging Gracefully, a book of photos of centenarians by Karsten Thormaehlen; they are the only married couple in its pages. 

“We’ve been together for nearly eight decades, and we still haven’t killed each other!” Morrie says.

“Though we’ve tried a few times,” chimes in Betty. “We’ve had plenty of run-ins, oh my God … but he never hit me, and I never hit him. Though I think I pushed him once.”

In turn, Morrie jokes about trading her in for two 50-year-old women. But whatever arguments they had are a thing of the past. “Now it’s peaceful,” Betty says, her hand touching the back of Morrie’s neck. She dismisses any idea of there being a secret to making a marriage work so long. “Just don’t let every complaint turn to anger. Tolerance and respect. And you’ve got to like them. Morrie would never use the word love; I do, but the actions are the same on either part.”

Why not the word “love”? Morrie replies that “to me, love is possessive; it’s controlling and demanding. The word that I would rather use instead is ‘caring’. You care about people. ‘Care’, to me, has a much deeper meaning. Love is an esoteric word, but one that people also use to mean all sorts of off-hand things. ‘I love playing tennis,’ and such. I hug Betty constantly, I kiss her constantly, I care very much about her.” Morrie assures me that the day they got together was the most fortunate of his life.

They met in New York City in 1938, at the wedding of Betty’s cousin, who happened to be the brother of one of Morrie’s friends. Betty was sitting at the table on Morrie’s left. “On my right,” he picks up the story, “was Rose Lebovsky, a very pretty girl, sophisticated, with wealthy parents. Betty has asked: why did you pick me? And I say: it’s because you ate less.”

Betty’s friends were unsure about the charming machinist, who had grown up in a tenement in East Harlem. But she let him drive her back home to College Point, in Queens.

“He was so handsome, with curly black hair. And on one of our first dates, the car broke down and he fixed it quietly and uncomplainingly, just like that. No fuss, unlike other men. I was impressed. And,” she repeats, “he was so handsome.” What else appealed to you, I ask: his sense of humour? She looks doubtful. “Er, yes, well, I guess so!”

  Morrie and Betty with their children, Judith and Steven in the 1940s.

The dating didn’t last long; Morrie left the East Coast and returned to California, where he had lived for some time having taken a road trip there with friends and fallen in love with the sunshine and easy atmosphere. Was it a memorable marriage proposal? “Oh hell no,” Betty replies. “He never proposed. He just asked: would you like to live in California?”

Morrie sent her the fare for the bus, and picked her up in LA after the four-day journey. They “found a rabbi in our price range” and had a simple ceremony, during which the rabbi said: “May the marriage be as pure as the gold in the ring.” Betty and Morrie “looked at each other and almost burst into laughter” – they had a fake gold ring bought at Woolworths.

For Betty, LA is a fabulous city. “You’ve got the beach, the mountains, and the climate is so nice; I think it’s like paradise.” She shows off the one-room condo where they’ve lived for five years, since moving out of their much-loved modernist home a few miles away. The flat is decorated with Morrie’s artwork, most of it from the 1950s and 60s. There’s a view of blue skies and Bunker Hill skyscrapers; Frank Gehry’s Walt Disney Concert Hall, with its luminous swoops and curves, is almost next door.

Betty says that old age for her has meant a great loss of energy: “My walking isn’t good, and I get confused.” These days, Morrie uses a mobility scooter. “He can’t forgive them for taking his car away,” says Betty. But they still go out for breakfast, and declining vigour is in part made up for by a sharpened appreciation of the world around them. Betty enjoys sitting outside a local cafe to see the play of sunlight and shadow, and likes to watch young children splashing in a nearby fountain, wondering which ones will brave the water, and which, too cautious, will turn away.

“I’ve lived a long life and a full one,” Morrie reflects. “I’ve never known a minute of boredom. I’ve always been busy, with work, or making things, or photography or travel, or most recently writing [he’s finished a memoir]. And there’s always another book to read. I sometimes say: I have so much to do, I don’t have time to die.”

 Morrie Markoff. Photograph: Karsten Thormaehlen

The day before his 99th birthday, he did die, at least for a few moments. Having had a heart attack – “Betty acted quickly and dialled 911; she saved my life” – Morrie was undergoing an operation to put in a pacemaker when something went wrong and he flatlined. “The surgeons killed me – not a good idea as I have relations who are attorneys.” Apparently, his mouth fell open, his tongue dropped out and the grieving family retreated to the hospital’s meditation room – only to be called back a little later to find Morrie alive and joking.

“If I were a religious man, I’d put my longevity down to divine intervention,” Morrie says. “As I’m not, I simply say it’s luck.” Though the fact that his father, a very heavy smoker, died aged 94 suggests his genes aren’t bad.

Morrie’s early life was far from pampered. He remembers the tenement he grew up in as rat-ridden, with a kitchen filled with cockroaches and mattresses alive with bedbugs. Six people lived in three rooms; he slept on two chairs his mother put together, piled with cushions, in front of the stove. But he was never hungry, he insists, even in the Depression years, and was given complete freedom.

He remembers swimming naked as a boy in an East River that was full of floating rubbish, condoms, faeces and flotsam; he loved to dive off the flour barges tied to the dock. Perhaps he built up a great immune system, he wonders. And diet? He relishes the memory of hot dogs on Coney Island, with mustard and sauerkraut, washed down with Dr Brown’s celery tonic. Until he got tongue cancer, Morrie also smoked cigarettes, cigars and a pipe. When working as a machinist, he’d leave the cigarettes in his mouth because his hands were so oily; the smoke would fill his eyes, and in the morning he couldn’t open them.

Betty, on the other hand, puts her long life down to her “seventh grade nutrition class”. She was always aware of preparing a meal with protein and vegetables. Plus every morning for decades they’d walk the three miles or so around the local lake, before breakfast.

They always had energy, they insist, and boredom is not in the family. One of their early drives was politics. Morrie was a member of the Communist Party USA and would often go on protests; Betty was once put in prison for an hour for handing out its leaflets. But the aim was never an overthrow of government, just a fairer society. They were devotees of Roosevelt and even more enthusiastic about Barack Obama. As for Trump: “In my lifetime, he’s the oddest person to be elected president … he’s an egomaniac, a wildcard, a casino-owner: how much tax does he pay?”

“He’s so prejudiced,” Betty adds.

Betty Markoff. Photograph: Karsten Thormaehlen

Politics spawned friendships, and they had a close circle when bringing up their two kids, Judith and Steven. (One odd thing about getting to a very advanced age, Betty has said, is seeing your children becoming senior citizens.) The LA house they lived in for decades was part of a progressive housing co-operative; it was designed as a community, and its residents were in and out of each other’s houses all the time. “The friends are not there any more … they are long since gone,” Betty says. I ask her how that feels. She’s quiet but brisk in reply: “Oh, I’m very adaptable.”

After the war, during which he was deferred from the army to make detonators and contour rockets, Morrie ended up owning his own appliance shop. He used the scrap metal from air-conditioner repairs to make the small, dynamic sculptures that were exhibited decades later. But then a passion for travel and photography took over, and Morrie and Betty shine a bit more brightly when remembering their camping trips and tourist escapades. The photos they show me of their trips around the world, from Mexico to Macau, are of an astonishing quality. What camera did you use, I ask? Morrie begins to enthuse about his Rolleiflex and Leica, before Betty groans and changes the subject.

She is clearly proud of him, however. “He’s very talented in lots of directions,” she says in a moment when he’s not around. “If he had grown up differently, who knows what he might have achieved?”

Morrie still feels his days are not long enough, and insists you don’t need much money to live an active and involved life. Their daughter lives in the next building, so even the death of one of the couple won’t spell utter loneliness. Yet again, he mentions their luck.

As I prepare to leave, he chides me mischievously: “You haven’t asked us about our sex life!” Then he laughs: “that’s just a memory”. With his hand on Betty’s knee, Morrie looks at the woman whom he has never told he loves, and says: “After 78 years, I can say I didn’t make a mistake. We’ve had our ups and downs, but we’re still here.”