Books : 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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Type of bind: Paperback
Dewey Decimal Number: 330.90511
EAN num: 9780345494016
ISBN number: 0345494016
Label: Random House Trade Paperbacks
Manufacturer: Random House Trade Paperbacks
Quantity: 1
Page Count: 288
Printing Date: January 30, 2007
Publishing house: Random House Trade Paperbacks
Release Date: January 30, 2007
Sale Popularity Level: 7948
Studio: Random House Trade Paperbacks
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“The economy [isn’t] a bunch of rather dull statistics with names like GDP (gross domestic product),” notes Tim Harford, columnist and regular guest on NPR’s Marketplace, “economics is about who gets what and why.” In this acclaimed and riveting book–part exposé, part user’s manual–the astute and entertaining columnist from the Financial Times demystifies the ways in which money works in the world. From why the coffee in your cup costs so much to why efficiency is not necessarily the answer to ensuring a fair society, from improving health care to curing crosstown traffic–all the dirty little secrets of dollars and cents are delightfully revealed by The Undercover Economist.
“A rare specimen: a book on economics that will enthrall its readers . . . It brings the power of economics to life.”
–Steven D. Levitt, coauthor of Freakonomics
“A playful guide to the economics of everyday life, and as such is something of an elder sibling to Steven Levitt’s wild child, the hugely successful Freakonomics.”
–The Economist
“A tour de force . . . If you need to be convinced of the everrelevant and fascinating nature of economics, read this insightful and witty book.”
–Jagdish Bhagwati, author of In Defense of Globalization
“This is a book to savor.”
–The New York Times
“Harford writes like a dream. From his book I found out why there’s a Starbucks on every corner [and] how not to get duped in an auction. Reading The Undercover Economist is like spending an ordinary day wearing X-ray goggles.”
–David Bodanis, author of Electric Universe
“Much wit and wisdom.”
–The Houston Chronicle
From Publishing houses Weekly
Nattily packaged-the cover sports a Roy Lichtensteinesque image of an economist in Dick Tracy garb-and cleverly written, this book applies basic economic theory to such modern phenomena as Starbucks' pricing system and Microsoft's stock values. While the concepts explored are those encountered in Microeconomics 101, Harford gracefully explains abstruse ideas like pricing along the demand curve and game theory using real world examples without relying on graphs or jargon. The book addresses free market economic theory, but Harford is not a complete apologist for capitalism; he shows how companies from Amazon.com to Whole Foods to Starbucks have gouged consumers through guerrilla pricing techniques and explains the high rents in London (it has more to do with agriculture than one might think). Harford comes down soft on Chinese sweatshops, acknowledging 'conditions in factories are terrible,' but 'sweatshops are better than the horrors that came before them, and a step on the road to something better.' Perhaps, but Harford doesn't question whether communism or a capitalist-style industrial revolution are the only two choices available in modern economies. That aside, the book is unequaled in its accessibility and ability to show how free market economic forces affect readers' day-to-day.
Copyright © Reed Business Information, a division of Reed Elsevier Ltd. All rights reserved.
From Bookmarks Magazine
Harford exposes the dark underbelly of capitalism in Undercover Economist. Compared with Steven Levitt’s and Stephen J. Dubner’s popular Freakonomics (*** July/Aug 2005), the book uses simple, playful examples (written in plain English) to elucidate complex economic theories. Critics agree that the book will grip readers interested in understanding free-market forces but disagree about Harford’s approach. Some thought the author mastered the small ideas while keeping in sight the larger context of globalization; others faulted Harford for failing to criticize certain economic theories and to ground his arguments in political, organizational structures. Either way, his case studies—some entertaining, others indicative of times to come—will make you think twice about that cup of coffee.
Copyright © 2004 Phillips & Nelson Media, Ltd.
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Rated by buyers 
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There was a lot overlap between this book and Steven Landsburg's "Armchair Economist" (discusion of why popcorn costs more at the movies, etc)
The good points, one by one:
1. Harford does a slightly better job of detailing differential pricing systems than Landsburg. Not only is the treatment of differential pricing better, but there is also a more clear treatment of why scarcity creates value. Rather than defining "The Indifference Principle" (Landsburg), Harford just simply stated the principle in a much more straightforward way.
2. This was a cool mishmash of a lot of unrelated ideas, but it didn't quite catch on in the same way that "Freakonomics" did. Perhaps this is because the author chose to do too much pontificating and less work on the facts.
3. There is a thorough demolition of a lot of misconceptions about free trade, and even a brief exposition of Abba Lerner's proof that a tax on imports is exactly equivalent to a tax on exports of the same amount. There was also something for the enviro-nutbags that demonstrates that there is no clear relationship between economic growth and pollution.
4. The discusion of Pareto optimality, rent seeking and random walks is particularly clear and accessible. Alan Greenspan covered the topic in "The Age of Turbulence," but it was less clear than this author's exposition.
5. There were interesting details presented in the special case of African idiocy. He revisited Bill Easterly's take on "Misadventures in the Tropics" as to why distorted incentives can explain a lot of Africa's misfortune.
6. The fact that he spent more time with actual case studies (without making this read like a book of statistics) is a significant positive point in the book.
7. The best chapter in the book is the one about PRACTICAL APPLICATIONS of game theory with REAL LIFE EXAMPLES. (Economists often get so carried away with building their models, that they forget that there is an empirical component necessary to know how good the model is. This chapter was a step in the right direction.)
The bad points:
1. His discusion of American health care is extremely foolish. There are many reasons that healthcare there is so expensive, and third party payments (insurance companies) are only a part of the problem. There are licensing restrictions and excessively long training periods that excessively limit on who can be a physician (this would have been a good addition to his comments on scarcity). There are also laws that don't allow prices to be posted in clear view in hospitals (which would have fit well into his chapter on information asymmetry). But with his long tirade against US healthcare, it was clear that he *just didn't know what he was talking about.*
2. Because of the weakness of the arguments about the US healthcare system, it is not clear how much of the rest of the book contained specious arguments. For example: The Lerner proof is something that was presented as just that. But a brief examination of some other sources shows that there are conditions under with the Lerner "proof" breaks down-- and these cases were not dealt with AT ALL by the author.
3. There was also omission of relevant facts. For instance: Switzerland is a country that has a private health care system (and private insurance) and its costs are lower than those of the United States (as a percentage of GDP), and this was omitted because it would run contrary to his PRIVATE INSURANCE BAD NATIONAL HEALTHCARE GOOD argument. In addition: There was NO exposition of what led him to assert that the quality of care in one place was better than another. (Exactly was so much better about Canadian health care than US? And how much better?)
4. There were also lots of misconceptions about China. There are LOTS of questions about the efficiency of Chinese investment. Japan was also a country that invested huge sums of money at diminishing returns, and it proved very messy to clean up. If he wanted to use a stellar example of capitalism at work, this was not the best one that he could have chosen.
Rated by buyers -
Among the issues addressed in this insightful book are health care and personal investing, two key topics for most individuals. His analysis is penetrating but unfortunately his economist's rationality seems to have obscured for him the limits of economic models in real world complexities.
Harford describes the U.S. health care system as suffering primarily from an information problem. He claims a major problem is the inability of insurance companies to reliably know the level of risk of those who get insurance which causes them to raise rates higher than they should be. That in turn drives away low risk persons who rightly believe that premiums are excessive. So the remaining folks to be insured are higher risk which causes premiums to rise even more. The insurance companies then also spend a good deal of money on underwriting risk (though apparently not very effectively) and massaging the claim and payment system to maximize profits. This leaves a patchwork system of coverage that is inefficient and expensive.
He proposes that we adopt the system in Singapore that focuses solutions on the precise problem of market inefficiency caused by inadequate information. The problem of lack of affordability is addressed by subsidizing directly the cost of insurance for the low income, not setting up a separate insurance system for them. Even better is to "tackle the general system of poverty" that prevents them from affording many needed services, not just health care.
The British system is flawed by limited choice and rationing by government. Harford claims that it is the lack of key information that "destroys the insurance market" for medical care. He would greatly enhance consumer information about disease and providers and then make most costs the direct responsibility of the consumer without any insurance. That would give them the incentive to become well-informed and apply the information gained to purchase just the care they really need and want. Insurance would be reserved for "catastrophic" costs that are largely unpredictable and (in most cases) out of the control of the individual (e.g cancer). [Harford recognizes that some major health problems are the result of voluntary behavior, e.g. smoking, but figures that "moral hazard" cannot be entirely avoided.]
These considerations dictate private health savings accounts (which currently exists for the self-employed). Some tax incentive would be available for all for basic expenses and the contributions would be mandatory. Presumably premiums for the catastrophic coverage would also be mandatory.
There are several problems with Harford's solution. In an ideal world, you could create a much better market for health care services where government's role could be minimized. One major problem Harford ignores is the impracticality (despite the theoretical desirability) of each person mastering and managing their own health care and costs. The truth is that medical treatment and costs are complex areas that even highly educated people have trouble mastering. Even if they have the skills to do so, the efficiency of each person trying to do so is a problem. Then there is the question of where we draw the line on "catastrophic" expenses and "normal" expenses and how much of the burden we make people bear. These problems exist in any system, but they don't disappear by any means with Harford's plan. The mandatory savings plan could appear to operate like Social Security, assuring a basic minimum of care. But if the savings were not managed well, an individual could still end up with inadequate savings to cover "normal' expenses at a point when they had no other income to do so. In Social Security, the individual cannot dissipate his pension through bad management because the government doesn't let him. Likewise, it would prove impractical to leave people without any medical support despite their own mismanagement.
Most people would rather have "experts" manage their health care and costs in exchange for assuring a reasonable standard of care over their lifetime. A parallel can be seen in the self-directed retirement industry (401K's and IRAs) where most people don't want to take primary responsibility for the complex task of investing their savings but are willing to pay others to manage it. And here, increasingly, there is a trend for government and employers to limit fees and set up reasonable "default" programs that serve most people with the option of greater flexibility for those who wish to accept greater risk.
Harford's system may work well in Singapore where there is a more homogenous population and uniform system of providers. But until and unless there are very much improved information systems and clear, beneficial options for people to choose from, then stronger governmental intervention is a necessary trade-off for health security for the vast majority of Americans. At ... Read More
Rated by buyers 
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The more I read about the strain developing countries are placing on natural resources and global food supplies, the more interested I have become in economic theory and policies. Unfortunately, my knowledge of such is limited to basic introductory courses in college. For that reason, I am glad I picked up this book; it has answered many of my questions and has shed light on many interesting topics for future reading!
Mr. Hartford uses the very first few chapters to introduce fundamental concepts such as supply and demand, scarcity, marginal costs, market efficiency, externality charges, and price targeting.
However, the fun doesn't stop there! Mr. Hartford then uses those concepts to explain a broad array of interesting topics: these topics include the health insurance industry, the stock market, auctions, free trade and globalization, tariffs and taxes, subsidies, pollution, government corruption, poverty, and China.
I must say that I am very impressed with this book. It wasn't too hard of a read, but it does make you think. In fact, in the later more advanced chapters, I often found myself going back and re-reading certain sections. Still, I enjoyed the book and found his writing style to be very good and easily digestible.
I really enjoyed the last chapter, which goes into great depth explaining how China has grown as a country and as a future economic powerhouse.
Rated by buyers -
If you liked Freakonomics, you will love The Undercover Economist. More straightforward explanations about who really gets the money from a $4 cup of coffee, how China went about becoming an economic superpower, why healthcare is not working in the US and specifically what can be done about it, why trade restrictions always backfire, and why poor countries remain poor. Easy reading, but not too easy . . . really gets you thinking. This kind of education can help all of us become more critical consumers of what we get from the media, politicians, and special interest groups.
Rated by buyers -
Using Ricardo's theory of rent seeking as a jumping off point, Tim Harford's "The Undercover Economist" is an upbeat introduction to microeconomics couched in language that is accessible to the layman without being trite or boring for those that already have a solid grasp of the subject.
The very first half of the books deals with a somewhat more modern version of standard theories of supply and demand, rent seeking, perfect and imperfect information, externalities and incentives. Modern examples such as the location of Starbucks and the cost of a double latte grande clarify the points completely.
In the second half of the book, Harford moves into the realm of macroeconomics dealing with issues such as taxation, government subsidies, incentives and disincentives related to externalities, the seemingly endless cycle of poverty in third world countries, the theory of comparative advantages, third world dictatorship and communist government policies as contrasted with democratic capitalist economies, education and so on.
Not quite a treatise on macroeconomics, Harford makes the subject infinitely more interesting by exploring the margins of the topic and explaining how such macroeconomic considerations drift into the world of microeconomics and affect such basics as pricing, supply, demand, production and incentives.
Perhaps the most interesting chapter in the entire book was Harford's brief explanation of the mathematics of game theory and how economic game theorists constructed a series of government auctions to endeavor to sell frequencies for cellphone licences to the highest bidding communications companies. The devil was obviously in the details as one auction succeeded beyond the wildest expectations of the government policy wonks whereas another garnered less than 1% of the anticipated revenue for the sale. Another chapter that will raise more than a few eyebrows explained in some depth why the world should welcome the globalization of trade and the elimination of trade barriers entirely.
Informative and entertaining, somewhat more academic in approach than the likes of "Freakonomics", "The Undercover Economist" is good reading for anyone who would like to have a deeper understanding of what makes the world's economies tick.
Paul Weiss
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