Posted on 12/12/2005 12:08:26 PM PST by Sonny M
The Undercover Economist: Exposing Why the Rich are Rich,the Poor are Poor -- and Why You Can Never Buy a Decent Used Car
By Tim Harford
Oxford University Press,
286 pages, $34.95
Economics has the power to bore the bright and to enchant the dull with abstractions that have no counterpart in the real world, and policies concocted by those who have never tried them. It is a discipline that gets respect because its precepts ought to work, apart from frequent evidence that they don't.
Tim Harford is an official of the World Bank in Washington, D.C. He also writes a column for London's Financial Times Magazine. In The Undercover Economist, he sets out to restore relevance to economics.
As he sees it, the failure of many theories to predict the real world is a result of reaching to grasp small issues in spite of bigger ones compelling attention. As he writes, "most economics has very little to do with GDP [gross domestic product]. Economics is about who gets what and why. . . . There is much more to life than what gets measured in accounts. Even economists know that."
Harford offers fresh explanations for ordinary questions. He shows how Starbucks gets away with charging $5 a cup for froth. His theory is that it's not the cost of production that sets the $5 price. Rather, he says, that's the price paid by the customer for being able to become a star for a moment while a wish for a latte is fulfilled. Harford explains how imbalances of information influence pricing when one side in a deal knows much more than the other. For example, a seller knows the truth of a used car's condition and the buyer wants a deep discount because he doesn't.
The Undercover Economist concludes with a discussion of globalization, trade and economic development. Harford acknowledges the harm globalization can do, but insists that protectionism does far worse things to people and to the environment.
Harford demonstrates that the economics taught a generation or two ago is old hat, stuff that should be put aside. For example, 40 years ago, it was economics' vanity that the business cycle was dead, put out of its misery by wise governments and their economists. Then came stagflation in the 1970s, an economic debacle in the early 1980s, when interest rates went double digit, and the currency crisis in the early 1990s, with its resulting year of depression in Southeast Asia. The business cycle, credit cycles and trade cycles are thriving, theories that they are dead notwithstanding.
A few decades ago, the World Bank operated in the belief that no country was too much of a disaster to move up to developed-world prosperity. A village in Laos could turn into Singapore in a generation with the right loans and guidance. The theory asserted that with the right equations, poverty would be licked. Harford doesn't say if he was part of this conceit, but he offers a very different take on how entrenched poverty should be viewed today.
He takes on Cameroon, calling it "the armpit of Africa," a kleptocracy in which the government has stolen so persistently that it has created an economy in which the only work that pays is stealing. Officials steal from visitors, from locals and from each other. An idealist would replace the crooks with honest officials, but this would be a mistake, Harford argues. He cites the work of economist Mancur Olson, who proposed that a wise dictator bent on theft will leave enough capital in the country to keep the economy running, the better to allow more theft.
But Cameroon has been bled dry, so is Olson wrong or are the crooks not optimizing their stealing? This is a vital question, for kleptocratic government is common in the developing world. (In the developed, too, some would say, but I digress.) Harford offers only half an answer. A rational dictator can pillage a country's wealth as long as he gets a superior return from his stash in Zurich, still a popular place for kleptocrats to hide their loot. Infrastructure maintenance is all very nice, but complete destruction works very nicely too. If one needs another example of a national looter who has turned government into robbery and destroyed a formerly verdant economy, Robert Mugabe of Zimbabwe will do.
What to do? Harford is too decent to say it, but cutting off the aid that gets stolen might actually force the crooks to flee to where they have put their cash. Just a thought, of course.
Harford is a realist. He notes the argument of leftist critics of child labour who would like to abolish factories that employ children in the Third World. He argues that the kids and their families are better off making money honestly, even if it is not much more than they would make in the twilight economies of market stalls, crime and poaching.
That aside, The Undercover Economist is dulcet stuff. It should interest both economists and schmoozers at Starbucks. Brief, chatty and digestible, the book should refute the old canard that economics is dismal.
BTTT
Can somebody spring for a copy to send to Paul Krugman?
The rich are rich and the poor are poor because of the same reason. They both keep doing the things that make them what they are...............
bump
bump for reading later
I haven't been here long, so could someone tell me what "bump" means? Also, "Ping"? Thanks. :)
People will have a 'Ping List', a group that they send articles to about certain issues.
Bump I have wondered myself! ;-)
Welcome to FR!
"Bump" means you are bumping the article to the top of the most recent posts page. Many freepers read the most recent posts to see what's going on. So an article that has been bumped moves to the top.
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Er, not exactly. While a few people might use a "bump" post when pinging to another individual or list of individuals, the purpose of a "bump" is to move the post, and thus the thread, to the top of the "Latest Posts" list ( http://www.freerepublic.com/focus/news/browse?ao=0 ), thus alerting anyone who checks that list. Many people use to use the "Latest Posts" screen as their main entry to FR, though I think it's less common now that the main web address has been rigged to default to the "News & Activism" screen. Used to be that www.freerepublic.com would take you to the home page ( http://www.freerepublic.com/home.htm ), where you would then select a particular forum, or "Latest Posts" or "Latest Articles".
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our necessities, but of their advantages." - Adam Smith, The Wealth of Nations, 1776.
Adam Smith - The Invisible Hand Speaks.
http://www.FreeRepublic.com/focus/news/671594/posts
Bump means to "bump" the post to the top of the message list so more people see it.
The most deluded economists are those who believe they can predict reliably the magnitude of economic activity and the quantitative effect of government action...but even a broken clock is right twice a day. The most dangerous are those working for the Fed.
Thank you all for the explanations and references!
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