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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!
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Sales rank 48,338
Customers rating (based on 120 reviews)
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An economist's version of The Way Things Work, this engaging volume is part field guide to economics and part expose of the economic principles lurking behind daily events, explaining everything from traffic jams to high coffee prices. The Undercover Economist is for anyone who's wondered why the gap between rich and poor nations is so great, or why they can't seem to find a decent second-hand car, or how to outwit Starbucks. This book offers the hidden story behind these and other questions, as economist Tim Harford ranges from Africa, Asia, Europe, and of course the United States to reveal how supermarkets, airlines, and coffee chains--to name just a few--are vacuuming money from our wallets. Harford punctures the myths surrounding some of today's biggest controversies, including the high cost of health-care; he reveals why certain environmental laws can put a smile on a landlord's face; and he explains why some industries can have high profits for innocent reasons, while in other industries something sinister is going on. Covering an array of economic concepts including scarce resources, market power, efficiency, price gouging, market failure, inside information, and game theory, Harford sheds light on how these forces shape our day-to-day lives, often without our knowing it. Showing us the world through the eyes of an economist, Tim Harford reveals that everyday events are intricate games of negotiations, contests of strength, and battles of wits. Written with a light touch and sly wit, The Undercover Economist turns "the dismal science" into a true delight.
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| Publisher | Oxford University Press, USA | | Release date | 11/2005 | | Availability | Usually ships in 24 hours | | Edition | Hardcover |
| | List price | $35 | | Our price | $23.1 (you save 34.00%) | | Used price | from $2.94 |
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Economics shouldn't be this fun
I have a soft spot for economics books, especially somewhat poppy ones. Mr Hartford strikes a perfect balance between poppy and teaching core principals. In fact I had a very hard time putting this book down.
What sets this book apart from other economics books are the examples. Mr Hartford's choices range from Starbucks (why coffee beans will always be cheap but coffee won't be) to the true cost of tariffs to health care reform. In fact his was the only argument for health saving accounts (combined with insurance) that actually makes sense to me. And while he's not in the Prof. Krugman camp, he's not far off.
The final two chapters, on globalization and China, are also extremely well written and help present the net societal benefits of globalization and also helps to explain the true costs of tariffs. These chapters are both to the point and, more importantly, don't sugar coat the problems that are inherent to the system and the dangers of doing things half way.
This was a quick, fun and enlightening read. What more can you ask for!
Become an economist (almost) instantly!
This was a great introduction to the field of economics.
He starts off talking about coffee shops and why they are at the top of every major subway escalator in every major city. Why not 2, or 3 shops? Why even 1? Why not a car dealership? He uses this to explain some key principles that then are used throughout the book.
I now see things in a different way. Lessons from this book almost inform me daily. For example, I live in a suburb about 30 miles south of Washington DC. Driving down the road and passing a taxi, my wife pondered if a taxi driver in a dispersed county makes more or less than a DC cab driver. After reading this book, I felt fairly confident telling her that they most probably made the same amount of money. Why? Well, you have to read the book.
He also gives a compelling argument for free markets and free trade. I don't believe he championed a specific political view (I lean left) but it made issues like trade with China make more sense.
It is VERY dense. I suspect the alternative is a book twice the size with more fluff but it really makes your brain hurt from time to time. But what he says is always interesting.
Anyway, I would highly recommend this book if you want to better understand what motivates people and how the world works.
 For those of us who aren't economists...
...Harford's work is invaluable. Some of the more technical reviews of this book lose sight of the basic issue: most of us do not think about the Dismal Science in our day-to-day lives. What this book does well is tie Economics to how we mere mortals live. Suggesting a scholarly treatise as an alternative misses the point completely. I had not the least interest in reading David Ricardo after this.
Macro 1 as it should be
Who pays for your coffee? With this simple yet mistaken (think about it!) question, Tim Harford introduces David Ricardo's theory of economic rent. Using the coffee stands at London's Waterloo station, he shows how the rents of the best locations are governed by the worst, the marginal sites at which the price can just cover the cost of production. `Undercover' does not imply illegality and danger, just a man going about his everyday business with a few extra intellectual tools.
Fortunately, the chapter titles make more sense after the first. `What Supermarkets Don't Want You to Know' illustrates price discrimination, `Perfect Markets and the "World of Truth"' how a perfectly competitive market could bring about efficient outcomes, and `Crosstown Traffic' and `The Inside Story' how externalities and asymmetric information spoil this story. `Rational Insanity' is an apt a description as any of herding in financial markets, while `The Men Who Knew the Value of Nothing' is not a description of mad economists selling rain forests and small children but an excursion into game theory via the trials and tribulations of radio spectrum auctions. `Why Poor Countries Are Poor', `Beer, Chips and Globalisation' and `How China Grew Rich' are more standard applications of comparative advantage and Olsen's stationary bandit theory.
The opinions and policy prescriptions are unsurprising for a Financial Times columnist -- free trade is good, environmental and fair trade activists are often misguided, tradable permits and taxes are the best way to solve pollution and congestion. (Unfortunately, Bastiat's quip about throwing rocks in your own harbour is attributed to Joan Robinson, which surely has them both spinning in their graves.) Yet while Harford exhibits flashes of unjustified dogmatism -- `trade barriers will always do more harm than good' and holding up South Korea as a shining example of free trade -- his views are generally more nuanced, separating goods trade and direct investment from financial openness in his discussion on globalization, and praising China's pursuit of gradual reforms and `growing out of the plan', rather than fire-sale privatization Russian style.
It is a great strength of the book that it starts with monopolistic competition -- firms with some price setting power, but still constrained by rivals, rather than the pedagogically more common (but empirically less so) extremes of pure natural monopoly or perfect competition. Yet the full implications of this pervasive market structure are not fully appreciated. The unavoidable dilemma whenever there is some fixed cost and marginal costs do not increase with output is that the efficient, marginal cost price loses money, while any increase in price is inefficient. Successful price discrimination may determine whether the product exists at all, not just whether the quantity provided is marginally more or less efficient. This dilemma is never squarely faced, unlike the problems posed by externalities and imperfect information. In `Perfect Markets' it is simply stated that marginal cost price is efficient. This could not be applied in most industries without a vast system of subsidies and restrictions on entry.
Aside from fixed costs, one of the very few areas of basic microeconomics neglected by Harford is the classification of goods based on rivalry and excludability. This may be asking too much of a work that, after all, does not claim to be a textbook. Yet claiming that `the basic rules for making money in the high-tech business are not so different from the rules for train operators or coffee bars' is not convincing. The combination of low rivalry in the intellectual property and low excludability thanks to easy piracy makes the software, pharmaceutical and music industries more different than he admits, and less susceptible to even a second-best market solution. Similarly, lumping police and schools together when considering government versus private provision is rather crude.
One piece of terminology is also unfortunate. As if the word `monopoly' is to be avoided at any cost, `scarcity power' is used instead, which indiscriminately covers cases of natural scarcity such as good crop land, differences in the efficiency of organizations (which are rather confusingly also called `natural'), contrived monopolies through government regulation or criminal violence, and skills that are in short supply.
Yet with these reservations, The Undercover Economist is still superb. In a market where introductory textbooks are growing ever larger, more colourful, and more expensive, the author has taken some of the most important ideas in economics, made them as simple as they can be (but no simpler), and related them to examples that are real, relevant and interesting. All in around 250 pages with 5 simple black and white graphs.
-Originally published in Agenda 13(3), 2006.
Economics demystified (for the developed world only)
Harford is a mecro-economist, a bridge between macro and micro economics. Harford explains macro-economic phenomena such as retail pricing, stock market behavior, taxation, health-care, environment, and licensing air-waves; by one-by-one getting inside the heads of each stake-holder on that poker table and dissecting their behavior in accordance with the first principles of economics: scarcity and choice. However, the insights only go as far as the developed world does. In the last 3 chapters where Harford tries to similarly explain the woes of the poor and developing worlds with examples of Cameroon, Belgium and China; his views quickly appear shallow and cliche, lacking the same wisdom as the rest of the book. 70% of the book is therefore a 5-star, and the rest is a 2-star.
With the Undercover Economist, Tim Harford de-mystifies the wiggling jelly of economics (where you cannot kill farm-destroying birds without suffering population explosion of farm-destroying insects and so on). What sound like conundrums are actually logical explanations of common-sense causal chains. For example, he explains that "more rational the behavior of stock market investors, the more erratic the behavior of the stock market becomes." I try to summarize: rational investors would buy shares today if it was obvious that they would go up tomorrow, but then everyone would buy today driving the price high enough so that it cannot go higher tomorrow. Rationality would obviously and consistently second-guess rationality, implying rationality cannot lead to predictable behaviour. The only thing left then is unpredictable news, which is a random event. This means that shares would behave like random walks. But if this was absolutely true, it would be a paradox, since rational investors would not invest in shares and only invest in predictable alternatives. The balancing point then lies somewhere in between. Harford then goes on to draw parallels with supermarket queues and how everyone tries to predict the fastest one, and a game of poker with players analyzing the outcome based on fundamentals yet betting based on their understanding of what the other players are thinking.
The book loses its panache, though, in trying to decipher globalization and the developed world through the "X-ray goggles of the undercover economist". Harford falls into the trap of taking the one-dimensional view of large developing countries (India and China in particular) as if they are obviously in a certain step in their evolution to become more and more like western developments. These simplifications might be half true, but hardly insightful. Statements of generalization based on anecdotes about either India or China is like generalizing about North and South Americas combined (a contiguous land-mass with about a billion people) or Europe and USA combined (the developed nations with about a billion people). Generalizations about India and China as an afterthought in the last couple of chapters lacked appreciation or perspective on the infinite diversity of the subject.
Except those week spots, a very readable economist with a fun and easy style. References to Nobel Laureates in Economics, and key theorems of importance would also make you keep going back to the book. This is one to keep.
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