Matthew Parris

Another Voice | 28 March 2009

In economics, as in meteorology, the basic theory is both boring and largely useless

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When I was a boy I never really understood strong winds, still less storms. I’m not sure I do now.

This was not due to complete ignorance of meteorology. Something of a star pupil at geography (why the weather was geography rather than physics baffled me), I absorbed with interest and some degree of comprehension the explanation of wind. Warm air, heated by the sun, would rise; and cooler air would waft in to take its place. Thus (I appreciated) a light breeze might waft from the cool sea to the warmer land during the day; but, by night, as the land grew cooler than the ocean, the airflow would reverse and a breeze blow from land to sea. All around the globe, as air pressures dropped or rose in one place or another, air would be sucked from one place to another to rebalance. And Mr van Aswegan demonstrated how rain was made when bodies of warm, damp air were caused to rise, and cool, and precipitate their moisture.

Our physics teacher, Mr Murphy, even demonstrated the effect with a different medium, water, showing how warm water (dyed with ink) rose as heat was applied by a Bunsen burner beneath. Oh yes, these explanations were clear enough to me, and intellectually satisfying. Those novelty ‘lava lamps’ filled with coloured oils that rose and fell in slowly mutating globs that became fashionable (for the first time round) in the 1960s when I was at school seemed to offer a pleasingly graphic demonstration of the effect.

But what neither Mr van Aswegan, Mr Murphy nor the lava lamps explained — and nobody tried to — were storms, and gales, and the sheer violence of the elements as observed in nature. The picture logically implied by Mr van Aswegan’s physics was (as I understood it) of a gentle, continuous rebalancing of pressures, so that the moment a pressure difference emerged between one patch and another, a little air (or water) moved from the area of higher to the area of lower pressure, until pressures were equalised.

But according to this picture you would never get the 40mph wind that buffets my window in Derbyshire as I write, clouds racing across the sky and the Scots pines on the hill waving wildly in the gale. Such a transfer of air suggests a sharp difference in atmospheric pressure between the place the wind is going and the place it’s coming from. This would never have arisen if Mr van Aswegan’s lessons had told the whole story: instead there would have been a very slight northwesterly breeze for the few days just behind us, as a pressure difference that had begun to build up was balanced out; not a couple of calm days followed by a sudden, roaring wind.

Water, after all, did not seem to behave like this. Violent tidal movements were explicable in terms of funnelling, but as for ocean currents, these proceeded very much as the van Aswegan model would suggest: at stately drifts of just a few miles per hour or less. Storms happened above the water-line but there was no hydraulic equivalent in the depths beneath it. Why not? I left school, having earlier obtained a distinction in GCE O-level geography, none the wiser.

And I’d been perplexed, too, by a comparable puzzle in the elementary economics I’d been taught. Price theory rather resembled the theory of the rebalancing of atmospheric pressures. Lessons had started with an outline of the theory of markets, and Adam Smith’s ‘invisible hand’. I had understood about supply and demand: how, if demand rises and supply does not meet it, a relative shortage (low pressure) will precipitate an increase in price, which should lead to higher profits and suck in higher supply which in turn should satisfy demand so that prices stabilise or even drop a bit. I understood the corollary too: that a surplus (high pressure) will lead to lower prices and, finally, reduced production and supply. The price of labour too, I understood, will rise and fall according to those same laws, so that in parts of the country with more jobseekers than jobs, wages will fall and jobseekers will get on their bikes and proceed, like the rebalancing breezes I’d learned about in geography, to parts of the country where vacancies exceeded applications and wages had accordingly gone up.

Again, this had a beautiful simplicity. But, again, the economic world these physics-like dynamics seemed to conjure up was one in which as soon as prices began to rise, enhanced supply began to drift in to scoop the benefits; and whenever demand for goods or labour dipped, capital (or job-seekers) eddied gently in the direction of better returns. This model, too, neither implied nor explained booms or busts, violent shortages or ruinous gluts. It didn’t explain cycles. It didn’t explain storms.

I never took geography or physics past O-level. Had I done so I might understand better now what I’ve gathered just an inkling of since then. It is that in meteorology the elementary principles, and in economics the basic theory, are the completely uninteresting and largely useless part of the study. All the interesting parts concern the reasons why nature does not conform, and economies do not either, to what the basic theory would seem to suggest.

They concern the ways in which pressure builds up, or vacuums deepen, without the pressure equalisation that theory suggests kicking in. In meteorology they concern, I suppose, studies of the behaviour of molecules, of the inertias and locking mechanisms that can be caused by friction, and the momentums that can build, and overrun, when those locks are finally broken. They concern, I suppose, the pendulum effects that can arise when a balancing action overbalances then swings back the other way, forever hunting the mark; and how these swing-cycles can be amplified when they get into sympathetic rhythms with other swing-cycles. They are as much about interaction as action; less about rise and fall than about bounce.

In economics and perhaps in other areas of politics too, they concern the psychological equivalents to friction, inertia, overrun and bounce: the restraining effects of human caution followed by the over-exuberance caused by the false confidence of herds; the dangerous amplification of cycles when attempts to brake or dampen a swing in one direction are applied too late and produce an exaggerated swing back the other way. They concern above all (I suppose) the critical nature of time lags.

I left school wondering why there were storms, and supposing that the movement of capital and labour, and of supply and demand, would be like a lava lamp: gentle, explicable, predictable. I look out of my window now enthralled by the gale, and staggered by the way the economic world I thought I knew has billowed, then imploded. ‘No return to boom and bust’ indeed. What arrant, ignorant nonsense. It’s all boom and bust, all billow and implode, all wax and wane and ebb and flow and come and go and to and fro. Basic physics and basic economics stop short just as things go haywire. Just as the bouncing starts.

Written byMatthew Parris

Matthew Parris is a columnist for The Spectator and The Times.

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