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The Undercover Economist

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The Undercover Economist

by Tim Harford

Oxford © 2006, 276 pages, $26.00 (ISBN 0-19-518977-9).

Why the Rich Are Rich And the Poor Are Poor

To show how the science of economics can be used to illuminate everyday issues, economist and writer Tim Harford points out how most of the things we take for granted, a cup of cappuccino for example, are actually the result of many converging economic elements that can be fascinating to explore. In The Undercover Economist, Harford reveals the underlying economic concerns associated with those systems that most people take for granted, and exposes the facts beneath them that offer opportunities for valuable savings.

From the multifaceted view of the economist, Harford describes how he observes the truth behind the people, partners and competitors involved in the vast social organizations of the world’s economies. By helping readers see the world from the perspective of the economist, he unlocks the mysteries beneath the economic decisions people make, such as the purchase of a used car. The result of his insight is a more savvy consumer and voter who can better understand the truth beneath the promises. By adding more clues to the economic puzzles of daily life, Harford transforms mundane decisions into well-considered choices.

Patterns of Scarcity

While describing the various factors behind the success of Starbucks and other top coffee bars across the globe, Harford reveals many basic economic concepts that shed light on coffee, land use, and housing costs. He writes that “the complications of everyday life often hide the larger trends behind the scenes, as scarcity power shifts from one group to another.” One lesson that can be learned from the spread of coffee bars and the plight of farmers whose landlords’ decisions about rent can cost them dearly is that sometimes relative scarcity and bargaining strength can change quickly, profoundly affecting people’s lives. In other words, if you want to do something about the high cost of buying a cup of coffee, you must first understand the patterns of scarcity that lie beneath.

“Economics is partly about modeling,” Harford explains, “about articulating basic principles and patterns that operate behind seemingly complex subjects like the rent on farms or coffee bars.” By reducing the complexity surrounding these issues and others, such as corporate profiteering, banking, and game theory, Harford provides a deeper understanding of concepts such as scarcity, value, competition and efficiency.

When focusing his keen eye for underlying economic patterns to organized crime and the underground drug trade, Harford points out that violence is often the most popular way to prevent competition. For drug dealers to benefit from the scarcity of the drugs they are dealing, they have many illegal means at their disposal to make competition scarce. But even violence might not be enough to make a good profit, so the effectiveness of the organization plays a major role in the success of a criminal operation. Citing one study of an

American street
gang, Harford explains that gang membership is not as lucrative as one might imagine due to the ready supply of guns and aggressive young men who often earn less than $10 an hour. He writes that this is a low wage for a person who can expect to be shot twice, arrested six times and has a one-in-four chance of being killed.

The more lucrative criminal enterprises, Harford points out, often involve Mafia groups getting involved in legitimate businesses, and then deterring others from entering them with threats and intimidation. So, it is not the violence that creates barriers to market entry and sustainable profits, it is the effectiveness of the organization.

Professional Groups

On the legal side of the economic equation, Harford delves into the impact of professional groups that approve only a certain number of candidates per year. Although these groups claim to protect the populous from “unqualified” professionals, they in fact serve to maintain the high rates of the “qualified” professionals. By limiting the supply of fully qualified professionals and outlawing any low-cost substitutes, professional groups keep their members’ prices high.

Other issues covered by The Undercover Economist include immigration, supermarket prices, Disney World’s prices, traffic, poverty, sweatshops, globalization, the availability of beer, and China’s future. The systems Harford reveals along the way provide valuable economic lessons about many issues that affect most people’s daily lives. ~

Why We Like ThIs Book

Harford does more than offer a professional’s perspective on mundane details: He digs beneath the surface of what people often overlook to reveal the nuggets of wisdom waiting there to improve their lives. He also makes this unearthing of value and knowledge an exciting adventure into the vast expanse of economics and its applications. ~

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