The human factor — why data is not enough to understand the world

Companies are turning to anthropology to balance the insights of algorithms and AI

Gillian Tett

      © Matthew Billington


A couple of years ago, staff at a Google “tech incubator” called Jigsaw made an important breakthrough: they realised that while their company has come to epitomise the power of technology, there are some problems that computers alone cannot solve. 

Or not, at least, without humans.

Jigsaw, wrestling with the problem of online misinformation, quietly turned to anthropologists. 

These social scientists have since fanned across America and Britain to do something that never occurred to most techies before: meet conspiracy theorists face-to-face — or at least on video platforms — and spend hours listening to them, observing them with the diligence that anthropologists might employ if they encountered a remote community in, say, Papua New Guinea.

“Algorithms are powerful tools. 

But there are other approaches that can help,” explains Yasmin Green, director of research and development at Jigsaw, which is based in an achingly cool, futuristic office in Manhattan’s Chelsea district, near the High Line. 

Or, as Dan Keyserling, Jigsaw chief operating officer, puts it: “[We’re using] behavioural science approaches to make people more resilient to misinformation.”

The results were remarkable. 

Previously, groups such as anti-vaxxers seemed so utterly alien to techies that they were easy to scorn — and it was hard to guess what might prompt them to change their minds. 

But when the Jigsaw team summoned anthropologists from a consultancy called ReD Associates, who listened with open-minded curiosity to people, it became clear that many of the engineers’ prior assumptions about causation in cyber space were wrong. 

For example, the techies had assumed that “debunking” sites needed to look professional, since that was what they associated with credibility. 

But conspiracy theorists thought that “smart” sites looked like they were manufactured by the elite — something that matters if you want to counter such theories.

So these days Google’s staff is trying to blend anthropology with psychology, media studies and, yes, data science to create tools that might “inoculate” more internet users against dangerous misinformation. 

“We can’t do this just based on what we assume works. 

We need empathy,” says Beth Goldberg, Jigsaw research project manager, who was trained in political science but has now also acquired anthropology skills.

A man wears a QAnon T-shirt in New Hampshire, 2020 © Getty Images


Will it fix the issue? 

Sadly not by itself, given the deep-seated societal roots of the problem. 

Nor will a dose of anthropology magically remove the anger that many people feel about the power of tech giants, and the sometimes irresponsible ways in which they have behaved. 

But the experiment has already had one benefit: it has made some Google techies understand what they don’t understand with their data tools — and why techies sometimes need “fuzzies”, or people with qualitative, not quantitative, analyses. 

As Twitter co-founder Jack Dorsey has observed, Silicon Valley would have probably built a much better internet and social media world if it had employed social scientists alongside computer scientists at the outset. 

This is not just a tale about tech, however. 

Far from it. 

The real issue at stake is tunnel vision. 

Today most professions encourage their adherents to adopt intellectual tools that are at best neatly bound or at worst one-dimensional. 

Economic models, by definition, are defined by their inputs, and everything else is deemed an “externality” (which was how climate change issues used to be perceived). 

Corporate accountants are trained to relegate things not directly linked to profits and losses (such as gender ratios) into the footnotes of company accounts. 

Political pollsters or consumer surveys often operate with pre-determined questions.

Humans are not robots, but gloriously contradictory, complex, multi-layered beings, who come with a dazzling variety of cultures. 

We cannot afford to ignore this diversity

These tools are often very useful, if not indispensable. 

But they have a flaw: if the wider context outside that economic model, company, political poll or Big Data set is changing, that bounded tool and neat quantitative analysis might not work. 

Pinning all your faith on an economic model alone, say, is like walking through a dark wood at night with a compass and only staring at the dial; no matter how brilliant that compass may be, if you do not look up and employ some lateral vision you will walk into a tree. 

Context matters.

And that is where anthropology can help, particularly as we grapple with pandemic-sparked disruptions and contemplate how we might live and work in the future. 

For at the heart of this endeavour is a basic truth: even in a digitised world, humans are not robots, but gloriously contradictory, complex, multi-layered beings, who come with a dazzling variety of cultures. 

We cannot afford to ignore this diversity, even after a year in which we have been cloistered in our own homes and social tribes; least of all given the fact that global connections leave us all inadvertently exposed to each other. 

So in a world shaped by one AI, artificial intelligence, we need a second AI, too — anthropology intelligence.

Anthropology might seem like an unexpected place to find fresh 21st-century ideas. 

The word derives from anthropos, Greek for “human”, and one of the first quasi-anthropologists was the Greek scholar Herodotus, who became curious about the different cultures of tribes in the fifth century BC Greco-Persian wars and tried to analyse them.

The discipline was established in its modern form by 19th-century Victorian intellectuals who wanted to study the far-flung colonial subjects of the European empires. 

Since these intellectuals were heavily influenced by Charles Darwin’s theory of evolution, and part of an imperialist power structure, their analyses were usually overtly racist — to the enduring shame of modern anthropologists. 

An entity known as the Cannibal Club, established in London in 1863, epitomised this dark past: although Cannibal Club members said they were searching for the essence of “mankind” by peering at so-called “primitives”, this research was primarily directed towards proving the supposed superiority of white men. 

However, in the 20th century, the discipline underwent two dramatic intellectual U-turns: instead of fostering imperial racism, it tried to become a beacon of anti-racist thought; and instead of just studying supposedly “exotic” cultures in far-flung lands, anthropologists turned the lens on western cultures too.

The trigger for this volte-face was that anthropologists began to leave the safety of their ivory towers — or colonial verandas — and went to live among the people they studied. 

An intense German-born American academic called Franz Boas was one of the first. 

In the 1880s he was stranded — by accident — among the Inuit in the frozen north, and that cultural immersion left him concluding that “the more I see of [Inuit] customs, I find that we [Europeans] really have no right to look down upon them contemptuously . . . [since] we ‘highly educated’ people are relatively much worse”. 

It was a shocking concept at the time, and Boas struggled for years to find an academic post in New York before founding the anthropology department at Columbia University. 

The Nazis later burnt his books. 

But in the 20th century this vision of “cultural relativism” — to use the phrase coined by Margaret Mead, one of Boas’s disciples — spread. And today, to cite the Canadian anthropologist Wade Davis, they like to view their craft as “the antidote to nativism, the enemy of hate [and] vaccine of understanding, tolerance and compassion that can counter the rhetoric of demagogues”. 

Or, as the Swedish anthropologist Ulf Hannerz puts it: “Diversity is our business.”

The second U-turn — studying western cultures — arose from cultural relativism. 

Once you accept that all cultures are apt to seem weird, or “exotic”, to someone else, it makes sense to use the same tools in familiar settings too. 

After all, as another anthropologist, Ralph Linton, noted: “The last thing a fish would notice would be the water”; it is hard for us to evaluate our own cultural assumptions. Familiarity creates blind spots, and outsiders can see things that insiders ignore. 

The goal of anthropology, then, is to be an insider-outsider — to have empathy for a culture and a sense of critical detachment.

This insider-outsider perspective can be invaluable — as I know from my own career. 

Thirty years ago I did doctoral work on anthropology at Cambridge university, and spent a year in a mountain village doing research in the (then) Soviet Republic of Tajikistan. 

Subsequently, I became a journalist and tried to flip the lens, using the same methodology to look at worlds that might seem more familiar to FT readers: credit derivatives, American corporate life, the White House, Silicon Valley and my own world of the media. 

It was often revealing. Focusing on rituals, symbols, social boundaries and what anthropologists call “social silences” (ie what people don’t talk about) helped me to see some of the financial risks that were developing in credit derivatives before 2007, as well as the risk of a Silicon Valley “techlash”. 

Other anthropologists have used the same skills in all manner of different settings, ranging from General Motors, JPMorgan, Japan Airlines, the US military, the British health service, Japan’s central bank, the American nuclear industry and the German tech scene — to name but a few. 

And these studies proffer answers to a dazzling range of questions. 

Why do masks stop pandemics? Why do Uber drivers hate AI tools? 

Why do consumers really buy dog food? 

Why do financiers find it hard to work from home?

A photograph taken by Gillian Tett of a mountain village in Tajikistan, where she spent a year doing doctoral research in anthropology


Frustratingly, such studies are not at all well known outside the discipline. 

And even when companies have employed anthropologists to offer advice, these messages are sometimes discounted, particularly when anthropologists try to study the “familiar” (ie how western companies work), rather than “strange” (ie how somebody else might behave). 

It is easier for Google executives to embrace the idea of using anthropologists to observe conspiracy theorists than to turn the lens on themselves. 

Powerful elites rarely want to stare at themselves critically — and the “problem” with anthropology, notes Lucy Suchman, a professor of anthropology at Lancaster University, is that “it often makes people uncomfortable”. 

But this is also why it is needed. 

And it would be nice to think — or hope — that the pandemic has created more willingness to do this. 

After all, the shock of the lockdown has already prompted policymakers to embrace some once-unthinkable ideas and shown corporate leaders why they need lateral — not tunnel — vision to evaluate risks. 

Indeed, one way to interpret the rise of environment, social and corporate governance and “stakeholderism” is that many corporate leaders recognise the need for a wider lens. 

The pandemic has also shown us that in a globalised world it is dangerous to ignore or deride other cultures when we are all so tightly entwined. 

We need more empathy for strangers to survive and thrive.

And lockdown has created another type of wake-up call too: in the past year we have all been forced to re-examine the daily rituals, social boundaries and unstated cultural assumptions that we used to ignore.

And as we return to “normal” in the next year (hopefully), we will also need to work out what cultural and social patterns we want to preserve in a more digitised world. 

The pandemic has shown us that in a globalised world it is dangerous to ignore or deride other cultures when we are all so tightly entwined

The answers may yet surprise us — even (or especially) among techies. 

A couple of years ago, for example, I watched a group of computer engineers hold a meeting in a drab hotel on Edgware Road, London, which discussed whether or not to introduce new internet protocols to counter hacks on western utilities such as energy systems.

For hours, they debated an anti-hacking protocol with the unwieldy name “draft-rhrd-tls-tls13-visibility-01”. 

Then came the moment of truth: a white-bearded engineer named Sean Turner solemnly addressed the crowd: “Please hum now if you support adoption [of this tool].”

A collective hum, like a Tibetan chant, erupted, and then Turner asked those who opposed the move to hum as well. 

A second — far louder — sound erupted. 

“So at this point there is no consensus to adopt this,” he declared. 

The protocol was put on ice.

This might seem odd; after all, the Internet Engineering Technical Forum is the group that built the internet and computer geeks appear to live in a “rational”, maths-based world. 

But the IETF has embraced this “fuzzy” ritual in recent years because the techies like being able to sense the mood of the entire group via humming — and get the type of multidimensional information that simple “yes-no” votes cannot reveal.

Indeed, these engineers are so attached to this ritual that they were very upset when they lost the ability to hum together during the Covid-19 lockdown — and although they tried to replicate what they liked about group humming with computer code, they realised it was impossible. 

So at some point, when in-person IETF meetings resume, the geeks will almost certainly start humming together again. 

When they do, this — like Jigsaw’s study of conspiracy theorists — will be another reminder of a fundamental and ultimately reassuring factor of modern life: there are some things that can only be analysed, solved or predicted by humans.


Gillian Tett is chair of the FT editorial board and editor-at-large, US. Her book ‘Anthro-Vision: How Anthropology Can Explain Business and Life’ is published on June 8 by Penguin Random House in the UK and Simon & Schuster in the US.



The Wisdom of Benjamin Anderson

Doug Nolan 


Perhaps it’s the greatest issue confronting today’s global markets. 

It didn’t work in the U.S. in the late-twenties. 

Arguably, it was an unmitigated disaster. 

Beijing has begun moving more aggressively to rein in speculative excess, while continuing its unrelenting furtherance of productive investment. 

Surging commodities prices are problematic for manufacturers along with other sectors, while stoking inflationary pressures throughout the unbalanced Chinese economy. 

China’s apartment Bubble has created monumental financial and economic risks, while exacerbating inequality and societal vulnerability. 

Meanwhile, Chinese officials remain steadfast in their determination to prolong the economic cycle. 

Especially after covid recovery measures, there’s an incredible amount of “money” sloshing around China’s financial system (and globally). 

Unprecedented Credit growth has elevated myriad price levels, particularly throughout the asset markets. 

Meanwhile, Beijing has repeatedly reaffirmed its commitment to “stable” Credit and liquidity management, which at this stage of the cycle basically signifies massive ongoing Credit expansion and over-liquefied “money” markets. 

In perhaps history’s most parlous historical revisionism, Ben Bernanke has professed a view that the Great Depression was the consequence of post-crash monetary policy mistakes. 

In short, the Fed was negligent for failing to print new money in quantities sufficient to recapitalize the banking system and reflate the general economy. 

Bernanke dismisses the Fed’s role in nurturing boom-time excess that over the long cycle fueled deep structural maladjustment. 

Moreover, Bernanke’s analytical framework disregards the momentous role speculative Credit - and associated liquidity excess and Monetary Disorder - played in fomenting both financial and economic fragilities (laid bare in the post-crash landscape). 

May 26 – Bloomberg (Sofia Horta e Costa): 

“China’s battle to maintain order in financial markets is getting tougher as money floods into everything from commodities to housing and stocks. 

In May alone, the government vowed to tackle speculation in metals, revived the idea of a property tax, oversaw hikes in mortgage rates in some cities, banned the mining of cryptocurrencies and played down calls within the central bank for a stronger yuan. 

Authorities are zeroing in on the risks of assets overheating as they maintain a relatively loose monetary policy to support the economic recovery from the pandemic… 

‘The policy trend is now focused on ensuring financial stability,’ said Alex Wolf, head of investment strategy for Asia at JPMorgan Private Bank. 

‘Beijing will want to resolve bubble risks at the outset, in a targeted manner, using strong rhetoric and small adjustments to policy. 

That appears to be enough for now.’”

Bubble risks will not be resolved. 

Unprecedented Credit growth. 

An epic cycle extended by increasingly intrusive government intervention and monetary stimulus. 

Deepening economic maladjustment. 

Monetary Disorder. 

There are clear and ominous parallels to the “Roaring Twenties” – today in China, the U.S. and globally. 

China is the first to move with various measures to rein in speculative excess. 

Notably absent to this point is a decisive shift toward higher interest-rates and broadly tighter financial conditions. 

I have over the years dismissed the Fed’s so-called “macro-prudential” approach in dealing with overheated assets markets. 

Regulatory measures meant to dampen speculative excess will fail in the face of loose money, liquidity abundance and booming securities markets. 

This is especially the case late in the cycle when bullish market psychology and manic behavior have become so well-entrenched. 

Not surprisingly, Chinese markets are not all worked up by Beijing’s pronouncements (Shanghai Composite jumped 3.3% this week!). 

The view holds that officials may tinker, but they wouldn’t dare push matters to the point of risking a Bubble collapse. 

Key aspects of the global environment are reminiscent of the late-twenties. 

There was New York Fed President Benjamin Strong’s infamous “coup de whiskey” in 1927 in the face of mounting UK and global fragilities – monetary stimulus that fatefully pushed already powerful Bubbles to precarious extremes. 

Yet nothing in history can compare to the past 15 months.

Benjamin Anderson (1886 to 1949) was an astute economist (Columbia PhD and Harvard professor) and writer that published the acclaimed Chase Economic Bulletin (over 200 issues!) throughout the 1920s boom. 

The Austrian School heavily influenced his economic framework. 

His tour de force, “Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946,” is must reading for those seeking a sound understanding of the forces that led to the 1929 crash and Great Depression.

I’ve attempted to extract insight pertinent to the current environment. 

They apply to the Fed, Beijing and contemporary central banking more broadly. 

Keep in mind that a momentous change in monetary management (Federal Reserve operations began in 1914) played an instrumental role in a boom that culminated with reckless speculative excess and the 1929 Bubble collapse. 

The key parallel to today’s cycle can be found with the creeping adoption of radical central bank activism, highlighted by zero rates and massive open-ended QE.

Benjamin Anderson: 

“The Federal Reserve Act would have worked well had traditional central bank policies been followed, namely, the holding of the rediscount rates above the market rates, and the use of open market operations primarily as an instrumentality for tightening the money market, not for relaxing it. 

The Federal Reserve System was created to finance a crisis and to finance seasonal needs for pocket cash. 

It was not created for the purpose of financing a boom, least of all for financing a stock market boom. 

But from early 1924 down to the spring of 1928 it was used to finance a boom and used to finance a stock market boom.”

“Certainly it was an unwise in the extreme to build upon it an unusual and illiquid kind of bank credit. 

It was unwise in the extreme to adopt a policy which would expand bank credit in capital uses, such as real estate mortgage loans, stock and bond collateral loans, bank investments in bonds, and the like. 

And yet we did these things. 

Had the Federal Reserve System followed orthodox central bank tradition, using no discretion at all but merely obeying the rules, we should have averted the disasters that followed.”

“Where the Federal Reserve banks bought tens of millions for a few days, in connection with the first three liberty loans, they bought hundreds of millions and held them for many months in 1922, 1924, and 1927. 

And where the Bank of England had primarily used its open market operations for the purpose of tightening its money market in prewar days, the Federal Reserve System used them deliberately for the purpose of relaxing the money market and stimulating bank expansion in 1924 and 1927. At a time when unusual circumstances called for extra caution, they abandoned old standards and became daring innovators in the effort to play God.”

“… The culminating episode of 1927, which touched the match to the powder keg and set the uncontrollable forces working which blew us up late in 1929.”

Noland comment: 

Had the boom come to an end in 1927 the financial crash and resulting depression surely would not have been as destabilizing, deep or prolonged. 

Instead, the “coup de whiskey” threw gas on a raging fire, fueling catastrophic late-cycle “Terminal Phase Excess.” 

Tremendous systemic damage was inflicted during the ’27 to ’29 speculative mayhem. 

I have argued Covid’s timing could not have been more pernicious. 

The unparalleled fiscal and monetary response pushed already historic financial and economic Bubbles to perilous extremes – The Everything Mania. 

Stock prices, corporate Credit, home prices, cryptocurrencies, NFTs, collectables, etc. 

Leveraged speculation. 

Derivatives.

Anderson: 

“Stock prices were already high in the summer of 1927. 

There was an unhealthy tone. 

There was a growing belief that stocks, though high were going much higher there was an increasing readiness to use cheap money in stock manipulation. 

The situation was still manageable. 

The intoxication was manifest, not so much in violent behavior as in slightly heightened color and increasing loquacity. 

The delirium was yet to come. 

It was waiting for another great dose of the intoxicant.”

“Our position in 1927 was thus an unwholesome and precarious one. 

We were busy and active, we were making money, there was little unemployment. 

But we were going ahead despite a fundamental disequilibrium, namely, the weakness of the farmers and the producers of raw materials in the absence of satisfactory export trade.”

“Speculation in real estate and securities was growing rapidly, and a very considerable part of the supposed income of the people which was sustaining our retail and other markets was coming, not from wages and salaries, rents and royalties, interest and dividends, but from capital gains on stocks, bonds and real estate, which men were treating as ordinary income and spending in increasing degree in luxurious consumption… 

We could prolong it for a time by further bank expansion and by further cheap money policies, but only at the cost of creating a desperately difficult situation at a later time.”

Noland comment: 

Bernanke and others have asserted Federal Reserve easy money policies cannot be blamed for the pre-crash speculative market melt-up. 

The Fed did belatedly move to raise rates. 

But without a determined focus on orchestrating a systemic tightening of credit, such measures proved an abject failure in restraining late-cycle excess. 

Anderson: 

“The Federal Reserve authorities from early 1928 on pursued an inconclusive policy based on three partially conflicting motives: 

a) the desire to restrain the use of credit for stock market speculation; 

b) the desire not to tighten money in foreign countries and not to pull in more gold from abroad; and 

c) the desire not to let money grow tight in business uses at home. 

The conflict among these policies meant that the efforts at restraint were handicapped and inconclusive, and that the wild speculation ran on for a year and nine months after the restraining efforts began.” 

“Here was a real restraining influence. 

The Federal Reserve authorities were using measures which, on the basis of their past experience, should have sufficed to stop the stock market boom and did suffice to stop the expansion of bank credit. But the boom went on. 

There was a new factor in the situation. 

The public had taken the bit in its teeth. 

The rise in stock market prices and the lure of stock market profits had caught the public imagination... 

Federal Reserve governor Roy Young: 'I am laughing at myself sitting here and trying to keep a hundred and twenty-five million people from doing what they want to do.'”

“When the Federal Reserve authorities tried to withdraw funds from the money market, the market found new and strange sources from which to draw funds. 

So much new money had been created in the period from 1922 to early 1928 that the problem of reabsorbing it and getting it under control was a very difficult one. 

When a bathtub in the upper part of the house has been overflowing for five minutes, it is not difficult to turn off the water and mop up. 

But when the bathtub has been overflowing for several years, the walls and the spaces between ceilings and floors have become full of water, and a great deal of work is required to get the house dry. 

Long after the faucet is turned off, water still comes pouring in from the walls and from the ceilings. 

It was so in 1928 and 1929. 

At a price, the speculator could get all the money that he wanted.”

May 24 – Bloomberg: 

“China stepped up its fight against soaring commodities prices, summoning top executives to a meeting that threatened severe punishment for violations ranging from excessive speculation to spreading fake news. 

The government will show ‘zero tolerance’ for monopoly behavior and hoarding, the National Development and Reform Commission said… 

The push to rein in surging metals prices rippled across markets -- with steel dropping as much as 6% and iron ore tumbling by close to the daily limit -- before prices steadied. 

The warning from the NDRC comes as a broad surge in commodities prices fuels fears that faster inflation could dent economic growth in China and beyond.”

The Bloomberg Commodities Index jumped 2.1% this week. 

Copper surged 4.4%, with Nickel rising 4.4%, Zinc 3.4%, and Aluminum 3.6%. 

Iron Ore added 1.2%. 

Tin prices ended the week at a decade high. 

Jumping 4.4%, Crude posted its strongest weekly gain since April. 

May 28 – Bloomberg (Alfred Cang): 

“China’s efforts to rein in surging commodities prices are likely to be in vain as it’s lost the ability to boss the market around, according to two of Wall Street’s biggest firms. 

The speed of the rebound in demand in advanced economies, particularly the U.S., means China is no longer the buyer dictating pricing, Goldman Sachs… analysts led by Jeff Currie, the bank’s global head of commodities research, said... 

That view was echoed by his equivalent at Citigroup Inc., Ed Morse, who said… that despite China’s efforts to curb price gains, the real supply-demand balance prevails… 

What Beijing is doing is similar to what Washington did in the mid-2000’s, according to Goldman. 

‘When commentators are unable to understand what is driving such a paradigm shift in prices, they attribute it to speculators - a common pattern throughout history, which has never solved fundamental tightness.’”

Chinese officials can be none too pleased that markets scoff at their commodity market pronouncements. 

Beijing’s credibility is on the line – and not just with surging commodities inflation. 

On multiple fronts, officials are attempting to rein in excess without resorting to a systemic tightening of financial conditions. 

Chinese officials are keen to impose some market discipline upon the corporate and local government debt markets – but without unleashing instability. 

They seek to cool housing market excess through “macro-prudential” measures, while acting cautiously to avoid bursting a historic Bubble. 

They are conveying some weakness. 

If Beijing is serious about reining in excess – and defending their credibility – they’ll have to get a lot tougher. Markets Beware.

It’s 1929 – and policymakers – in China, the U.S. and globally - have lost control of Bubble Dynamics. 

At this point, timid measures will not suffice. 

Efforts to rein in speculative excess while promoting productive investment are destined to fail. 

To break deeply ingrained speculative psychology will require pain – yet policymakers rightfully fear a bout of pain could unleash a panic. 

“The public had taken the bit in its teeth.” 

The global “bathtub” has been overflowing for too many years. 

“Fundamental disequilibrium.” 

Beijing, the Fed and the global central bank community “could prolong it for a time by further [central] bank expansion and by further cheap money policies, but only at the cost of creating a desperately difficult situation at a later time.” 

Benjamin Anderson’s analytical framework is as germane today as it was during the waning days of the “Roaring Twenties”.

Spending a packet

An investment bonanza is coming

Firms across the world are spending big. We analyse their capital-expenditure plans


AS LOCKDOWNS LIFT across the rich world, people are going out and spending. Australia’s restaurants have been rammed for months. 

America’s shopping malls are filled with people splurging stimulus cheques. 

Cinemas in Britain, which were allowed to reopen in mid-May, are packed once again. 

Yet behind the scenes another, potentially more significant, spending bonanza is just beginning.


Businesses are starting to invest in huge numbers. 

In America capital spending (or capex) by companies is rising at an annual rate of 15%, both on the hard stuff (machines and factories) and intangibles (software). 

Firms in other parts of the world are also ramping up spending. 

Forecasts for global business investment have never looked so rosy. 

Analysts at Morgan Stanley, a bank, predict a “red-hot capex cycle”. 

Overall global investment, they reckon, will soar to 121% of pre-recession levels by the end of next year (see chart 1). 

Oxford Economics, a consultancy, argues “the time looks right for a boom in capex”, while IHS Markit, a research firm, forecasts that global real fixed investment will rise by more than 6% this year.

Today’s optimism marks quite a change from the pre-pandemic norm. 

In America gross domestic business investment, as a share of GDP, had been sluggish since the early 1980s. 

After the financial crisis of 2007-09 it took more than two years for global investment, in real terms, to regain its previous peak. 

By contrast, although investment fell more steeply at the start of the pandemic, it has been quicker to bounce back this time. 

The prospect of surging capex holds out promise that the global economy will not face a repeat of the 2010s, when growth in productivity and GDP stayed stubbornly below pre-crisis trends. 

Investment in new products, technologies and business practices is, after all, the foundation for higher incomes and a better quality of life. 

What is behind the capex cheer—and could it last?

To understand why analysts are so upbeat, consider the firms included in the S&P 500, America’s main stockmarket index. 

Together they account for about one dollar in seven of total rich-world corporate capital formation. 

In a recent report Bank of America analyses these companies’ earning calls since 2006, and concludes that executives are at their most bullish about capex. 

The Economist has looked at the biggest 25 non-financial firms in the S&P 500 and found that analysts’ expectations for capex in 2021 have risen by 10% in the past year.

For now the investment recovery is concentrated in a few industries. 

We find that global tech firms are expected to boost capex by 42% this year, relative to 2019. 

Apple will invest $430bn in America over a five-year period, an upgrade of 20% on previous plans. 

Taiwan’s TSMC, the world’s largest semiconductor-maker, recently announced that it would invest $100bn over the next three years in manufacturing. 

Analysts reckon that Samsung’s capex will rise by 13% this year, having gone up by 45% in 2020.

Tech companies are spending so freely in part because the pandemic has created new demands. More shopping happens online. 

Remote work is on the rise. 

New equipment and software is needed for that to run smoothly. 

Recent research by Nicholas Bloom of Stanford University and Steven Davis and Yulia Zhestkova of the University of Chicago finds a big rise in the share of patent filings for work-from-home technologies. 

UBS, another bank, reckons that shipments of computers for commercial use will rise by nearly 10% this year, an acceleration even over the last.

Tech firms are not the only enthusiastic spenders. 

Firms in the S&P 500 that focus on discretionary consumer spending boosted capex by 36% year on year in the first quarter. 

Companies such as Target and Walmart, two retailers, are trying to keep up with the online giants that are eating their lunch. 

Marks & Spencer, an august British retailer, recently announced that it had launched 46 new websites in overseas markets from Iceland to Uzbekistan.

Other retailers are spending frantically to expand capacity, having been caught out by the surge in household spending. 

Everything from sofas to hot tubs is in short supply. 

Earlier this year Peloton announced “substantial incremental investments” in expediting the transport of its exercise bikes from Taiwan. 

Maersk, a shipping firm, recently said it would buy more containers to ease bottlenecks. 

The global order-book for enormous container ships has risen from 9% of the current fleet, in October, to over 15% in April.

The big question is whether the emerging capex boom augurs a broad and lasting shift away from the weakness of the 2010s, or is simply an enthusiastic but temporary response to reopening. 

Not all firms are boosting capex: our analysis suggests that about half of the firms in the S&P 500 are not expected to invest more in 2021 than they did in 2019. 

Global oil-and-gas firms are cutting back by a tenth relative to pre-pandemic levels, possibly in response to lower expected demand for their planet-warming fare. 

Airlines and cruise-ship operators are also dialling down spending perhaps in expectation that it will take time before people can travel freely again. 

Many executives, say from raw-materials or industrial-goods firms, continue to preach capital discipline. 

It may be quite a leap for them to go from a decade of austerity to boom time.

Another worry is the trend towards greater consolidation in industries from hotels to mining, which seems unlikely to have been reversed by covid-19. 

Research by the IMF suggests that companies with market power may be less keen on investing. 

In the five years before the pandemic, for instance, American business investment in hotels was lower than it was in the five years before the financial crisis, even though demand was far higher.


Set against that, though, economic conditions today could convince reluctant companies to loosen the purse strings. 

In contrast to the post-financial-crisis period, households have a lot of savings to spend. 

A more decisive fiscal and monetary response this time has also allowed firms to load up on cash (see chart 2). 

Bond issuance by investment-grade-rated American companies jumped to a record $1.7trn in 2020, up from $1.1trn in 2019, according to S&P Global Market Intelligence, a research outfit.

Moreover, the economic reallocation provoked by covid-19, and its investment implications, will be felt for some time. 

Managers in some industries, especially semiconductors, already accept that they went into the pandemic with too little spare capacity, and are promising multi-year projects to make up for it. 

Perhaps most important, the pandemic is leading to an era of greater technological optimism. 

The rapid deployment of entirely new business models when covid-19 struck, not to mention vaccine discovery, may have reminded bosses of the payoff to innovation. 

All of that might explain why the expectations for capex by S&P 500 firms in 2022 are even more ambitious than those for this year. 

The investment boom may only be getting started. 

The myths behind the current stock market bubble

Central bank liquidity cannot support elevated valuations indefinitely

John Hussman

Years of intervention have cast central banks as tools of self-reinforcing speculation. Mere phrases such as ‘Fed support’ now suffice as complete investment strategies © John Lund/Getty



The legendary value investor Benjamin Graham once advised: “The habit of relating what is paid to what is offered is an invaluable trait in investment.”

Amid recent record highs in numerous stock market valuation measures, investors face a rare, possibly once-in-a-generation opportunity for the critical thinking that Graham encouraged.

Financial markets and economies are settings where the beliefs of individuals drive behaviours, collectively producing outcomes that then inform beliefs in turn. 

In the short-run, it may be irrelevant whether these belief systems are well-founded. 

In the longer run, the question is not optional.

Among the strongest elements of the belief system propping up record valuations and trading debt is the notion that central bank liquidity has the capacity to support elevated valuations indefinitely. 

Years of intervention have cast central banks as tools of self-reinforcing speculation. 

Mere phrases such as “Fed support” now suffice as complete investment strategies.

An example of this confidence is the near-universal assertion that record valuations in equity markets are justified by low interest rates. But what is meant by “justified”?

It is axiomatic that the higher the price one pays today for some set of future cash flows, the lower the long-term return one can expect. 

Elevated stock market valuations reduce future stock market returns. 

Record-low interest rates may “justify” record-high stock valuations, but only in the same way that poking your eye with a stick “justifies” smashing your thumb with a hammer.

The situation is worse if, as in recent decades, depressed interest rates are accompanied by below-average growth in gross domestic product and corporate revenues. 

Record valuations then merely add insult to injury.

It may be useful to critically examine the belief that central bank “liquidity” is a reliable mechanism for supporting market valuations. 

Central bank asset purchases operate by removing interest-bearing securities from private hands, and replacing them with zero-interest base money (bank reserves and currency). 

Like stock shares, bond certificates or any other security, once base money is created, it must be held by someone at every moment until it is retired by a central bank.




Central bank asset purchases “support” the equity market primarily by amplifying the discomfort of investors who must, in aggregate, hold this zero-interest base money. 

The moment one attempts to place this liquidity “into” the stock market, it immediately comes “out” via the hands of a seller. 

This liquidity is not “sitting on the sidelines”. 

There are no sidelines. 

Base money can take no other form until it is retired.

Discomfort with low-interest liquidity can certainly amplify yield-seeking speculation in other assets, but only as long as investors expect higher returns on those alternatives. 

Yield-seeking speculation fuelled the bubble in mortgage securities and housing prices that ended in the global financial crisis, yet persistent Federal Reserve easing did little to halt that crisis once risk aversion took hold. 

Relaxing bank accounting standards on valuing assets in March 2009 did that. 

At record valuations, the markets are again reliant on the psychological willingness of investors to rule out the possibility of market losses.

Central bankers appear quite willing to disregard speculative valuations in pursuit of their “dual mandate” of inflation and unemployment. 

This adherence might be excused if activist monetary policy had large and reliable first-order effects on these economic variables, and only second-order effects on financial instability, instead of vice versa.

These concerns might be countered by observing that, in recent years, valuations have not mattered. 

Clearly, if overvaluation alone was sufficient to drive markets lower, one could never reach the extreme valuations observed in 1929, 2000 and today. 

The problem is that now investors require the markets to enjoy a permanently high plateau. Otherwise, valuations will matter profoundly.

In 1934, Graham and David Dodd described the errors that contributed to the 1929 extreme, and the collapse that followed. 

They observed that investors had abandoned attention to valuations in favour of prevailing trends, while “the rewards offered by the future had become irresistibly alluring”. 

Moreover, the backward-looking success of passive stock ownership had encouraged investors to ignore price as an investment consideration.

Graham and Dodd lamented: “It was only necessary to buy ‘good’ stocks, regardless of price, and then to let nature take her upward course. 

The results of such a doctrine could not fail to be tragic.”


The writer is a philanthropist, investor and economist

The UK must try harder if it is to lead the world on climate

Government should get to work on a credible plan for taxing emissions

Martin Wolf

Vehicles queue at the Blackwall Tunnel in London. The UK’s commitment to ban the sale of cars with internal combustion engines by 2030 is important © Glyn Kirk/AFP/Getty


The UK generates a mere 1.1 per cent of global emissions of greenhouse gases. 

This makes it the 16th largest emitter. 

Even if all its emissions were to cease tomorrow, the world would hardly notice. 

So what might be its role? 

The answer is that it could be both an example and a leader. 

It can demonstrate what first-rate policy would look like, and it can nudge the world on to a different trajectory before it is too late. 

The former is vital. It cannot be influential in the world if it is not successful at home. 

So how is it doing?

The answer is: not well enough. Unlike lunatic Republicans, the Conservatives do not deny the science. Progress has already been made towards decarbonisation. The government has also committed the UK to reducing emissions by 68 per cent in 2030 and 78 per cent in 2035 below 1990 levels. Moreover, the 2035 target will, for the first time, include its share of international aviation and shipping. But neither progress nor policies are as good as they should be. If the UK is to be a model and leader, it must try harder.


Between 1990 and 2018, UK territorial emissions of CO2 fell by 39 per cent. 

More impressively, they fell by 21 per cent just between 2013 and 2018. 

But 63 per cent of the reduction over the longer period, and 85 per cent of that in the shorter period, was due to decarbonisation of energy supply alone — primarily the elimination of coal and growth of renewables. 

Business also reduced emissions significantly. 

But little happened elsewhere.

Above all, almost 40 per cent of the emissions for which UK residents were responsible in 2016 were outside the country.

The most important of these were from net imports (34 per cent of the UK’s carbon footprint), aviation (4 per cent) and shipping (1 per cent). 

The UK has the second most carbon-efficient economy in the G7 group of high-income countries, behind France. 

But it has a long way to go to get to net zero, especially if we focus on its global footprint.



What needs to be done?

The good news is that the transition to net zero is feasible and also far cheaper than most feared even a decade ago. 

If one takes into account the benefits of cleaner air, making the transition is a “no-brainer” for the UK alone. 

Yet it is also complex and will require tough choices.

In terms of sectors, the important challenges up to 2035 are energy, transport and residential heating.

On energy, a set of regulations, incentives and procedures is needed to drive the necessary investments in a fully renewable system. 

This is now more or less on track. 

In transport, too, the shift to electric vehicles may be even quicker than most people now expect, as the costs fall and the efficiency of batteries continues to rise. 

The UK’s commitment to ban the sale of cars with internal combustion engines by 2030 is important. 

Its biggest omission is the failure to invest in the needed expansion in charging infrastructure.

A third of UK households lack off-street parking. 

This lacuna has to be filled quite quickly.



Yet too little is happening on residential heating. 

A shift to heat pumps, for example, will be demanding and costly. 

Many people will need financial help, including on improving insulation.

As important as such sectoral plans are the right incentives, via taxation of emissions and subsidisation of negative emissions. 

A 2020 report by the Zero Carbon Commission (authored by my daughter) analysed the politics and economics of carbon pricing in the UK.

Pricing emissions is a necessary but not sufficient condition for reaching net zero efficiently. 

A price would cover all activities, make polluters pay, harness the motive of economic gain and encourage people to exploit their knowledge. 

A carbon price would also raise revenue, which could be used to help poorer households pay for the costly changes they will need to make.

The Zero Carbon Commission recommends a price of £75 a tonne of CO2 in 2030, which would also raise a little over 1 per cent of gross domestic product. 

In addition to generating revenue, a uniform levy would eliminate the current divergences in implicit prices of emissions across the economy. 

Today, for example, electric heating is more heavily taxed than gas. 

That makes no sense.


Yet, if the UK were to tax energy-intensive tradeable activities more heavily, they would shift offshore even faster. 

That would be politically unacceptable and is also quite likely to end up increasing global emissions. 

The answer has to be a border tax adjustment. 

That might even accelerate a move to global limits.

The UK has ambitious targets and some good plans. 

But these also have obvious holes. 

Above all, it has failed to announce a credible levy on emissions. 

It needs to do better if it wishes to lead.

Helping the Other 66%

Addressing within-country inequality may be the political imperative of the moment. But tackling vastly greater cross-country disparities – especially those affecting the two-thirds of humanity living outside the advanced economies and China – is the real key to maintaining geopolitical stability in the twenty-first century.

Kenneth Rogoff



CAMBRIDGE – What is remarkable about the increase in nationalist sentiment across the developed world in recent years is that it is occurring at a time when many of today’s most pressing challenges, including climate change and the COVID-19 pandemic, are fundamentally global problems demanding global solutions. 

And the anger brewing among citizens of vaccine-poor countries – basically, the two-thirds of humanity living outside the advanced economies and China – could come back to haunt the rich world all too soon.

US President Joe Biden’s ambitious plans to address inequality in America are to be welcomed, provided the administration succeeds in covering the long-run costs through higher taxes or stronger growth, admittedly two big ifs. 

So, too, is the smaller but still significant Next Generation EU scheme to help European Union members such as Italy and Spain that have been disproportionately affected by the pandemic.

The 16% of the world’s people who live in advanced economies have had a tough pandemic but are now looking forward to a recovery. 

China, which accounts for another 18% of the world’s population, was the first major economy to rebound, thanks mainly to its better epidemic preparedness and greater state capacity to contain the coronavirus.

But what about everyone else? 

As the International Monetary Fund highlights in its April World Economic Outlook, there is a dangerous global divergence. 

The horrific wave of COVID-19 in India is likely a preview of what is still to come across much of the developing world, where poverty has exploded. 

Most countries are unlikely to return to their pre-pandemic output levels until at least the end of 2022.

Until now, the twenty-first century had been a story of catch-up for the developing world, far more so than had seemed likely in the 1980s and 1990s. 

But the COVID-19 crisis has hit poorer countries just as the rich world is waking up to the fact that containing both the pandemic and the looming climate catastrophe depends hugely on the efforts of developing economies. 

That is not to mention the cooperation likely to be needed to contain terrorist groups and rogue-state actors in a world seething about the global inequities that the pandemic has laid bare.

Making matters worse, much of the developing world, including emerging markets, entered the pandemic with sharply elevated external debts. 

Overnight monetary-policy rates may be zero or negative in advanced economies, but they average over 4% in emerging markets and developing economies, with longer-term borrowing – the kind needed for development – much more expensive. 

A number of countries, including Argentina, Zambia, and Lebanon, have already defaulted. Many more could follow when the uneven recovery pushes up global interest rates.

How, then, can poorer countries pay for COVID-19 vaccines and relief, much less the transition to a green economy? 

The World Bank and the IMF are under enormous pressure to find solutions, and have been doing a good job in at least explaining the problem. 

But these organizations lack the financial structure needed to deal with challenges of this scale. 

In the near term, a new allocation of special drawing rights (the IMF’s reserve asset) can help, but this instrument is too crude and ill-designed to use on a routine basis.

The Bretton Woods institutions established at the end of World War II were designed to act mainly as lenders. 

But just as rich countries gave their own citizens outright transfers during the pandemic, the same needs to be done for developing economies. 

Higher debts will only aggravate the likely defaults in the pandemic’s aftermath, particularly given the difficulties involved in determining seniority among various public and private lenders. 

Stanford University’s Jeremy Bulow and I have long argued that outright grants are cleaner than, and thus preferable to, lending instruments.

So, what is to be done? 

For starters, the rich world needs to take the cost of vaccinations off the table for developing economies, in part by fully funding the multilateral COVID-19 Vaccine Global Access (COVAX) facility. 

The cost, in the billions of dollars, is paltry compared to the trillions that richer countries are spending to mitigate the pandemic’s impact on their own economies.

Advanced economies should not only pay for the vaccines but also provide extensive subsidies and technical assistance in delivering them. 

For many reasons, not least that there will be another pandemic, this is a more effective solution than seizing intellectual property from vaccine developers.

At the same time, advanced economies that are prepared to spend trillions of dollars on developing domestic green energy ought to be able to find a couple hundred billion per year to support the same transition in emerging markets. 

This assistance could be financed by carbon taxes, which ideally would be intermediated by a World Carbon Bank, a new global institution focused on helping developing countries to decarbonize.

It is also important that developed economies remain open to global trade, the main factor behind lower inequality across countries. 

Governments should tackle inequality at home by expanding transfers and the social safety net, not by erecting trade barriers that disadvantage billions of people in Africa and Asia. 

And those people would also benefit from a significant expansion of the World Bank’s aid arm, the International Development Association.

Addressing within-country inequality may be the political imperative of the moment. 

But tackling vastly greater cross-country disparities is the real key to maintaining geopolitical stability in the twenty-first century.


Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.