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The Undercover Economist : Exposing Why the Rich Are Rich, The Poor Are Poor - and Why You Can Never Buy a Decent Used Car! Paperback – 2006
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The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor--and Why You Can Never Buy a Decent Used Car! by Harford-Tim
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Many recent books (notably Freakonomics) have dealt with the more exciting realms of economic research, such as the application of certain economic models to what most people would consider non-economic behavior. And far more books have talked about "economics" in the context of even trendier ideas like globalization (think The World is Flat or even No Logo). Such books, however, are reflections of marginal (in the case of the former) or unsophisticated (in the case of the latter) economic schools of thought.
Harford presents the orthodoxy in all its glory, and reminds readers that economists really do see the world in a different--and fascinating--way. He explains simple, but often misunderstood, concepts like adverse selection (that is, why health insurance costs too much), as well as even simpler, but far more consequential, economic models, such as David Ricardo's explanation of why landowners, and not farmers, make money from rising crop prices. Along the way, he explains why the prices at Safeway and Whole Foods are about the same--and why the prices for items on the top shelf are higher than prices for the same goods on the bottom shelf.
Granted, the book has its flaws, principally its (market-driven) lack of any equations or graphs and, more important, its refusal to take up any serious questions of macroeconomics. If you want to understand how recessions occur or how federal spending affects the world and national economy, then you're out of luck. But in focusing tightly on basic microeconomic principles--the foundation of the most insightful parts of economics--Harford succeeds in keeping the book accessible and useful.
Tim Harford's stuff, though, is worth reading. A regular contributor to slate.com and the financial times, Harford has the gift of explaining complicated economic ideas in accessible language.
Although the comparison to "Freakonomics" is made prominently by the book's cover (which in my version includes an endorsement from Freakonomist Steven Levitt himself, as well as a description as the "elder sibling" of Freakonomics by `The Economist'), `The Undercover Economist' is the better economics book. Freakonomics, after all, doesn't teach too much economics: beyond emphasizing that "people respond to incentives" (an important message, for sure) it answers such questions as whether Sumo wrestlers cheat (They do) and what name should you give your child (It doesn't matter). Harford, on the other hand, explains such valuable economic concepts as rent seeking, externalities and asymmetrical information, and does so in a language that suits both academics and laypeople, with fun examples and a little history of economic though to boot. What more can you ask for in a popular book?
For those with a little knowledge of economics (I have an undergraduate degree in Business Economics) much of it will be familiar. And yet there are enough interesting tidbits that don't make it into your average introductory economics textbook. The chapters about the stock exchange and the application of game theory for auctions were both informative, thought provoking, and fun to read.
For me, the great revelation was the discussion of the environmental effects of globalization. I admit that I have long considered environmental damage to be the most credible counter argument to economic benefits of trade; But Tim Harford makes a good case that that ain't so. "Races to the Bottom" in which countries compete for the worse environmental regulations are unlikely, Harford argues - the advantage in producing "dirtily" is simply not big enough. Rather, Harford shows that protectionism leads to over production, and thus to pollution. And yet, Harford acknowledges that economic growth as such does hurt the environment. And therefore the dilemma of environmentalism or growth is not entirely imaginary - just exaggerated.
There are times when Harford does not raise his opponent's best arguments. In the chapter on free trade, Harford does not discuss various theories of Path Dependencies and learning curve. In the chapter of poverty, he hardly discusses the effects of the environment on economic growth (a major issue in Jeffrey Sachs'The End of Poverty: Economic Possibilities for Our Time), or the questionable legacy of western imperialism. I'm not saying that these are irrefutable objections - quite the contrary - but Harford doesn't quite do them justice.
Still, Harford's book is well written, entertaining, and informative. It targets the economically challenge but has something to offer to all readers, no matter how economically astute.
Hartford discusses at length and with many examples key concepts such as marginal return and comparative advantage. One of the more enlightening chapters is about how new technologies that make the whole world richer can also make investors poorer by causing an investment bubble with unrealistically high expecations for returns. Hartford is writing of 19th century railroads, emphasizing that the internet did not change economic theory at all, that it is today as strongly governed by economic laws as were the railroad entrepreneurs of 150 years ago.
The Undercover Economist compares well with Steven Levitt's Freakonomics. Where Freakonomics presents interesting problems with counterintuitive solutions, Hartford sticks closer to plain vanilla economics and uses everyday happenings to illustrate his points. It also compares well with Steven Landsburg's Armchair Economist (1993) in that they both present standard economics. I prefer Landsburg's book (slightly) because it covers more ground (e.g. indifference curves) but Hartford's book is more topical and up to date.
Vincent Poirier, Tokyo
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