Book Review: “The Undercover Economist” by Tim Harford

Title: “The Undercover Economist”
Author: Tim Harford
Publisher (US): Random House
ISBN (US): 9780345494016
Pages (US): 265
Release Date (US): January 30, 2007 (check)
Publisher (UK): Little, Brown
ISBN (UK): 9780316731164
Rating: 4/5
Purchase: Amazon.com

If you’ve read “Freakonomics” or “Superfreakonomics” by Steven Levitt and Steve Dubner, there’s a good chance you will enjoy this book. On the front cover, there is even an endorsement by Levitt: “Required reading.” (At least, it did on the Little, Brown edition I read.) While I may not agree with the assessment that it should be “required,” I do think that this is a highly educational read, particularly for anyone that is interested in economics.

My twelfth grade economics teacher said that economics is a study of scarcity. Or perhaps he said that it is driven by scarcity. In either case, I am inclined to disagree: I think that a better way to define economics would be as the study of incentives. That is what is at the heart of this book. Harford takes a look at ordinary, everyday, sometimes even mundane processes through the eyes of an economist and shares them with the reader. There are chapters titled “Who Pays for Your Coffee?” and “What Supermarkets Don’t Want You to Know,” to broader issues such as “Why Countries Are Poor,” and more technical chapters such as “Perfect Markets and the ‘World of Truth.’” If you want to see why markets are the way they are, why items and services are priced the way they are priced, this is the book for you.

“Economics matters,” Harford says (254). And I agree. In this book, he makes an excellent case for why studying incentives is important to the lives of every person, particularly the poor. People suffer when their governments provide incentives to do predatory things. As Harford explains economic principles such as externalities, or the necessity of information, or the benefits of globalization, he also provides engaging examples of why these things matter. They affect not only the price of coffee, but the well-being of citizens around the world. (It may be worth mentioning that this book might more aptly be titled “The Undercover Capitalist Economist.” While this is no treatise or Capitalist Manifesto, it is a look at markets and how and why they work. No defense of command economies here.) One of my favorite quotes from this book is:

[S]ome companies have scarcity power and can set prices that are far above their true cost, which is where they would be in a competitive market. This is why economists believe there’s an important difference between being in favour of markets and being in favour of business, especially particular businesses. A politician who is in favour of markets believes in the importance of competition and wants to prevent businesses from getting too much scarcity power. A politician who’s too influenced by corporate lobbyists will do just the reverse. (78; Little, Brown edition)

This is the way I’ve come to define my economic views in the past couple of years. I’m not always pro-business, but I always try to be pro-market.

One of the things that, I suppose, necessarily goes hand in hand with being fairly technical is that it becomes a little difficult to read. The book is not overly difficult, but it is also not a novel. For people who are not economists (like me), understanding some of the economic principles he explains takes some thought and may require a repeated reading. Still, I think such a primer in market economics is worth it, if I can gain a better insight into the world around me. I am glad to be a recipient of the knowledge and well-documented research that Harford provides in this book.

If you want to read a reasoned explanation of why efficiency in the markets is a good thing–or maybe you don’t! Even if all you want is an explanation of basic economic principles and how they manifest themselves in our world, this is a good read. Push through the technical language to understand the meaning and significance of it, because Harford does a fine job of explaining the markets as he sees them, and you might learn a thing or two.

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