A sideways look at economics
This summer marked a personal watershed as I packed up my home in London and moved back to Rome. It’s a homecoming that has been more than a year in the making, and increasingly resembles one of my family’s favourite movies, The Twelve Tasks of Asterix, a cult animation from the 1970s. Comparing my progress to the plot of the movie, I am currently at a standstill in the middle of task number eight, where Asterix and Obelix are stuck in the ‘place that sends you mad’ — still a very accurate and pointed description of Roman bureaucracy. Nevertheless, I remain optimistic that it will all be worth it, even if not to the same extent that it was for our Gallic heroes.
For the uninitiated, after achieving all their tasks, Asterix and Obelix are proclaimed as gods and the rightful rulers of the Roman empire by a defeated and dejected Caesar. An incredulous Obelix asks Asterix if all this could really be true, to which Asterix replies that, in a cartoon, anything is possible. At this point, Obelix ditches his newfound glory and riches and teleports himself to ‘Pleasure Island’ while eating a wild boar, thus revealing his fantasy of a dream life.
Though Rome offers a plentiful supply of wild boars these days, I have more sober expectations for my dream life than being Rome’s ruler. At the moment, I would happily settle for a relatively well-organised daily routine in my new life in Rome even over being declared a god by Caesar (though I must admit Pleasure Island sounds quite appealing). However, the point of swapping London for Rome was partly about aspiring to the cartoon ideal of ‘having it all’ and making anything possible.
While ‘having everything’ is obviously impossible, and aspiring to have everything is the quick way to being diagnosed as a psychopath, it’s important to not be too defeatist about achieving at least some of my dream life. Economic theory has actually helped me to elucidate my thoughts on this topic. In particular, neoclassical concepts like Pareto efficiency — the idea that an optimal action, decision or allocation ought to yield no improvement without making someone worse off — have deeply shaped my behaviour; and especially the idea that there may be many such efficient allocations or decisions. However, Pareto efficient outcomes can rely heavily on assumptions that are too detached from reality.
Another, lesser-known concept — the theory of the second best — is particularly important in this respect. It broadly says that if an idealistic objective cannot be achieved in real life, then partly achieving that goal may not be the second-best outcome. It might be preferable to go in a completely different direction, rather than trying to fulfil only a fraction of the ideal solution. This concept makes clear that the outcome of a decision is the key unit of analysis, rather than the assumptions needed to achieve said optimal outcome.
Second-best theory is widely applied in competition policy, to justify allowing a large merger to go ahead or protectionist measures being deployed in cross-country trade disputes. It is also increasingly used in analysing the environmental impact of different economic policies. Our work at Fathom implicitly embeds this principle. The quality of our work and our high client-retention rate stem directly from an almost obsessive focus on the right outcome for the right client, on always trying to debias ourselves rather than sticking to predefined answers or processes. Finally, second-best theory also had a strong influence on me in reaching my decision to quit London and move to Italy.
Only a couple of years ago, I had no burning desire to move country. I felt I was pretty close to my first-best outcome. Then COVID struck. Lockdowns really drove home how far down from first and second best it is possible to drop, when just a few rings get broken in the chain that holds us together. I started healing by focusing on the little things that made me happy, but I also quickly realised that how these come together is equally important. A new approach was needed, reflecting the new constraints but also the new opportunities. I challenged myself not to settle for second best, but to strive for another Pareto efficient allocation that could challenge the old equilibrium. A new surrounding started to look like the right answer.
It is certainly early days, but it is the new opportunities from this change that I am really excited about. For example, to simultaneously be in Rome and in my dream job was an unthinkable outcome just a few years ago. Now that it has actually happened I am confident it will open new opportunities for Fathom across Europe (do get in touch if you want to have a chat). More personally, rekindling old friendships and the opportunity to make new memories in old places are undoubtedly attractive propositions. So is the chance of seeing my kids walk the same streets I once did. Moreover, regular travel to London will allow me to reclaim the city for myself in a way I have not been able to do for years, while still cultivating my network of London friends and colleagues. Overall, I’m hoping that what started as a quest for a second-best solution might actually turn out as a net improvement, and a step closer to having it all.
For now, I need to get through my own eighth labour, and undoubtedly the ninth, tenth, eleventh and twelfth ones as well. I will certainly update you in future blogs on whether at the end of my labours I finally get the keys to the city of Rome, or whether I would have been better off emigrating to Barbados or some other Pleasure Island instead. In the meanwhile, if you’re ever in Rome drop me a line, and I’ll treat you to some homemade pasta with wild boar sauce.
More by this author