Why We Can't Trust Experts

Especially the ones armed with spreadsheets

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Today, a story about experts.

Those people weā€™re told we have to listen toā€¦

As we stand in awe & reverence, staggered by the depth of their knowledge.

Something like that anyway.

See, when weā€™re looking for answers, we tend to seek out experts.

Seems logical, right?

Thereā€™s two problems with this.

The first is a marketing one.

If an expert is easy to find, chances are theyā€™re a professional expert.

Which is often different to being an actual expert (expertise, but no marketing budget).

The second problem is an uncomfortable truth.

Experts are humans, just like the rest of us.

Which means theyā€™re biased, and they make mistakesā€¦

See, after the Great Financial Crisis, governments became obsessed with debt being too high.

This probably seems absurd in the current context, where rules must be adhered to, but definitions can be changed šŸ‘‡

Incredible.

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Youā€™ll have to trust us. Debt being too high was a real thing that governments genuinely worried about 10 to 15 years agoā€¦

Actually it was more than just worry.

They were TERRIFIED.

This expert study played a huge role šŸ‘‡

January 2010: Professor Carmen Reinhart and the former chief economist of the International Monetary Fund, Ken Rogoff, are presenting a research paper called Growth in a Time of Debt.

At a time of economic crisis, their finding resonates - economic growth slows dramatically when the size of a country's debt rises above 90% of Gross Domestic Product, the overall size of the economy.

Word about this paper spread. Policymakers wanted to know more.

The work was referenced by countless policymakers across the world to justify austerity.

Spending was cut, jobs were lost.

People were struggling & miserable.

Until a few years later whenā€¦

A Harvard student tried to replicate the results šŸ‘‡

Herndon ā€¦. spotted a basic error in the spreadsheet.
The professors had accidentally only included 15 of the 20 countries under analysis in their key calculation (of average GDP growth in countries with high public debt).

Australia, Austria, Belgium, Canada and Denmark were missing.

Oops šŸ˜¬

Not only thatā€¦

The rest of the paper turned out to be a complete clusterf**k too.

Remember, this was co-authored by someone who had Chief Economist at the International Monetary Fund on their CV!

Not only were some countries missing entirely...

Data was weighted incorrectlyā€¦

One outlier year was given the same weight as two DECADES of high debt with robust growth. And so on.

The eventual conclusion, after all the kinks had been ironed out?

High debt is correlated with somewhat lower growth, but the relationship is much gentler and there are lots of exceptions to the rule.

And thatā€™s how a decade of austerity was caused by a simple spreadsheet error.

Thatā€™s a mistake made by proper* experts.

The ones with all the credentials and social proofā€¦

Now, weā€™re experiencing an epidemic of ā€˜expertsā€™

Those people who speak confidently about subjects that they donā€™t fully understand, but have VERY strong opinions about.

Especially if thereā€™s a highly emotive angleā€¦ šŸ‘‡

Nobody knows what it means, but itā€™s provocativeā€¦ gets the people going

Meanwhile, reality keeps chugging along, hiding away in the boring shadowsā€¦

See, if you work in and around the City, you know that not much has changed.

And the physical location of ā€˜clearingā€™ in a digitised world is irrelevant.

The City STILL dwarfs Europeā€™s financial industryā€¦

Another stat from the same report:

London listed companies have a total value of almost Ā£5 trillion, Ā£2.3 trillion more than the next largest European exchange.

The difference is ENORMOUS.

But this stuff doesnā€™t get the coverage.

Change sells.

Bad news sells.

Letā€™s go back to that 140 billion pound figure.

Itā€™s not the first time weā€™ve seen itā€¦

Guess what?

That figure was calculated by experts.

Khanā€¦ based his statement on a report he commissioned from economic consultants Cambridge Econometrics, who estimated how fast the economy would have grown if Britain had voted to stay in the EU

Calling it a calculation is a dis-service to maths.

These guys are trying to estimate something that doesnā€™t existā€¦

Two little words let them get away with pretty much anythingā€¦

ā

ceteris paribus

The latin for all other things being equalā€¦

So, after a global pandemic that changed behaviours in a thousand different ways, and with a looming AI revolution, weā€™ll just assume that nothing would have changed and extrapolate the past into the futureā€¦

Basically, we have an expert study, thatā€™s flawed from the outset, being used by people cosplaying as experts to prove a point.

The main problem with these studies is that they try to treat economies like physics, instead of dynamic systems comprising billions of highly emotional & adaptive humansā€¦

ā

ā€œImagine how much harder physics would be if electrons had feelingsā€

Richard Feynman

Because these ā€˜expertsā€™ obsess over the ā€˜objectively measurableā€™ stuff, they miss everything else.

In other words, they miss the expertise.

All that messy stuff thatā€™s hiding in the irrational brains of people in the real world.

Out there experiencing things, understanding the incentives of the actors involvedā€¦

Like this guy šŸ‘‡

A lot of people would be massively turned off by the language used thereā€¦

But if youā€™ve followed his musings for the past eight years, youā€™ll know this is someone who works in the City...

Getting increasingly frustrated by the coverageā€¦

When this person has been highlighting precisely why Brexit would only have a tiny impact on the UKā€™s finance industry since 2016.

From spreadsheet errors to wild guesses dressed in complexity costumes (and lots of algebra), we canā€™t blindly trust the experts.

Until they open themselves up to the chaos of the real world, the experts will remain perpetually baffled...