The Wile E. Coyote Illusion

Have you looked down yet?

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Looney Tunes aficionados know it as a key variation on the Canyon Fall Gag. In pursuit of Road Runner, Wile E. Coyote runs off the edge of a cliff and plummets to the ground, his arrival at the bottom signalled by a cloud of dust. Quite often Wile E. runs off the edge of the cliff and doesn’t realise it. He hangs in midair, in defiance of the laws of physics. Then he looks down, and down he goes.

I was reminded of Wile E. when attending a Civic Future conference in Cambridge on Britain’s economic growth, or lack of it.

As Sam Bowman points out, things have got quite bad. Americans could stop working each year on September 27th and they’d still be richer than Britons working for the whole year. There are car wash managers in Alabama who earn three times the median UK salary. If the UK continues with the same rate of growth it has enjoyed over the last decade, Poland will be richer than us by about 2035.

Yes, we’ve lived through a financial crisis and a pandemic and Brexit in the last fifteen years, but we’ve taken bigger hits than comparable countries from the first two, and of course the third was self-inflicted. This is more than a blip. As Adrian Wooldridge says, Britain is running the infrastructure of a rich country with the income of a poor one.

Economists sometimes refer to a “Wile E. Coyote moment” to describe an economy that only seems to be doing fine but is about to crash. Britain’s Wile E. Coyote moment has lasted about 150 years.

Look back at the history of Britain’s economic governance, from its squandering of North Sea oil revenues, to its over-hasty shift away from manufacturing, to its neglect of everywhere outside the capital, and it’s a miracle we’re still a rich country at all.

The truth is that we’ve been running down the enormous good fortune we inherited from our nineteenth century forbears. There’s a strong argument that our malaise goes back to 1900 when first the aristocracy and then the government got complacent and failed to invest in innovation. The Victorians built a strong enough economy and infrastructure that even as others have overtaken us we’ve remained wealthy and functional. But we’re like the dissolute heirs to grand estates who assume that the house runs itself and all the servants will stay because that’s how things have always been.

It’s famously hard for poorer countries to catch up with richer ones. The converse of this is that once a country gets rich, it’s very hard for it to screw things up so badly that it gets poor. You have to say, though, Britain is really putting in the effort.

Don’t look down.

Wile E. Coyote moments don’t just occur in the realm of macro-economics. In all kinds of contexts, it’s easy for people to believe in the illusion that they’re building something, when all they’re doing is running down an existing stock.

Take, for example, working-from-home (WFH). In lockdown, a lot of companies discovered that they could run things reasonably well without having people in the office. There was no plummet to the bottom - in fact, people seemed to be more productive than ever. So, after the pandemic had abated, bosses let their staff stay home most or all of the week.

I recently had a video meeting with one of those companies: a medium-sized PR firm I’ve been working with, on an occasional basis, for several years now. They - the principals of the firm - were all in the office, for the first time since lockdown. And they looked so happy! We’ve decided to come back to the office, they said, and it’s much better. All the staff are feeling good about it. We didn’t know what we were missing.

They are part of a broader trend. The Economist reports, “a gradual reverse migration is under way”. The big tech companies, who were most bullish about WFH, are now reverting to shared workplaces.

Several recent studies have found that productivity is lower among people working at home compared to their peers in the office. Why? Because work is inherently social. People communicate with each other better, faster and more efficiently when they’re in the same space. They can gather information more easily, learn skills faster, and get better feedback on how they’re doing.

There are good things about WFH and I expect some of the post-pandemic shift to be permanent. But companies were able to cope with lockdown unexpectedly well because they had two forms of infrastructure to fall back on, only one of which was visible. There was online videoconferencing, and there was company culture.

By the latter I mean an existing stock of relationships and ways of doing things that were formed in the office and which are much harder to form, learn, or refresh, over video. If you’re a new employee it’s harder to bond with your company if you’ve only worked remotely. It’s harder to pick up the skills you need, or to assimilate its unspoken norms.

Even experienced employees grow apart from each other if they don’t meet regularly in person. A company’s culture deteriorates entropically, increasing transaction costs, harming efficiency and generating anxiety and dissatisfaction. But all this takes time to become apparent. There’s a lag period of a couple of years when things seem to be going fine. Until they’re not.

I see the Wile E. Coyote illusion everywhere. In my book Conflicted/How To Disagree I covered a finding from the field of relationship studies. Couples who don’t argue much get along well and seem to be doing fine, but because they’re not arguing, they not updating their mental model of each other (it’s often in arguments that you find out about what your partner really thinks and feels). So they gradually drift apart, until one day - boom, someone gets a surprise. Some apparently strong relationships actually function by running down the stock of understanding and empathy built up in the first few years, while the couple fail to replenish it.

You see the illusion at work in consumer markets. Some pop stars and authors produce amazing work in their first few years and then do mediocre work after that. But because they’ve built up such a stock of good will, nobody says it’s mediocre. The reviews are glowing, the sales are decent. Until they’re not. Big brands cut their advertising budgets and cheapen their products and sales don’t fall off a cliff. But that’s because they’re running down a stock of consumer familiarity, good will and habit built up over years of previous investment. When that stock dips below the precipice they find themselves scrambling to catch up again. The movie industry is making endless sequels while neglecting to create the franchises of the future.

The Wile E. Coyote illusion also offers us a perspective on AI. I recently mentioned the theory of model collapse. If we start training our AI systems on data produced by AI systems, which produce lossy versions of human data, we’ll enter a recursive loop of deterioration until everything turns to garbage. We’re about to hand over more and more power to these impressively intelligent machines. Are we sure they’re not just running down the stock of human endeavour?

Don’t look down.

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After the jump: the two things that Labour’s leadership needs to get right in order to stand a chance of increasing Britain’s longer-term growth rate.

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