Book Review: The Undercover Economist by Tim Harford

‘The Undercover Economist’

By Tim Harford

Abacus

ISBN: 978-0-349-11985-4

I have read Freakonomics and when I read its author’s praise for this book (Steven Levitt: “Required reading… It brings the power of economics to life”, I couldn’t remain but excited about it. And what a read it has been.

Tim Harford is an economist and a member of the Financial Times editorial board. He is now a writer, but before this he worked for Shell, the World Bank and then taught at Oxford University. Through this book, Tim wants to tell us that economics is not pure theory, but it is at its best when applied to solve day to day problems and to answer simple questions in our day to day life. He starts with giving a description of how complex the “economics” is when we think about the various works needed to bring one cup of coffee for us to enjoy. Often, we don’t think much behind the apparent and hence don’t appreciate the big picture. Throughout the book, the author touches one interesting point after the other, providing us with insights which we never got before. He explains how open markets leads to most efficient economy, how “scarcity power” guides the high rents and premium, how ‘marginal’ land is of central importance, how unskilled workers oppose immigration of unskilled workers for their own selfish reasons, how our laziness to go some more steps results in shops at strategic locations ripping us off, and how supermarkets charge more for trivial features and we don’t even know.

He explains how “price targeting” is best for the companies (but it is not so for customers and hence is controversial) and how IBM’s low-end laser printers were actually costlier to make than high end printers. The portion on “efficiency versus fairness: can we handle the truth” is also amazing (case on pharmaceutical companies and pricing methods). He thinks ways to control traffic (concept of marginal cost), evaluates if “green campaigns” are any good at all, and explains the impact of “imperfect information”. The last chapter is on how China is on fast track to richness and why. But it presents a balanced picture, the authors also shows the dark sides of China’s growth.

It is an amazing read on practical economics and I am sure you won’t be disappointed by reading it.

© Rahul

Book Review: Freakonomics

Freakonomics: A rogue economist explores the hidden side of everything
By: Steven D. Levitt and Stephen J. Dubner
Penguin Books

I had heard about this book when in b-school but couldn’t lay my hands on it. Now that I got it, I started with enthusiasm. The front cover carries Malcolm Gladwell’s comment on it: “Prepare to be dazzled”. And WSJ says, “If Indiana Jones were an economist, he’d be Steven Levitt”. After reading it, I found that the book lived up to the hype!

It is an amazing book which doesn’t feel like trading on economics. It is common sense, in the most uncommon form. The book is an eye opener and I am sure all of us would learn so much new from it no matter how much we knew from before. It teaches us how to see the hidden side of everything.

I would reproduce portions from the front cover flip:

Which is more dangerous, a gun or a swimming pool? What do schoolteachers and sumo wrestlers have in common? Why do drug dealers still live with their mothers? Why do prostitutes earn more than architects?

One of today’s most original thinkers turns our view of the world upside down…

Life can be baffling and chaotic, and sometimes it’s hard to make sense of it all. The answer, explains groundbreaking thinker Steven Levitt, lies in economics. Not ordinary economics but Freakonomics. It is at the heart of everything we see and do and the subjects that bedevil us daily: from parenting to crime, sports to politics, health to education, fear to traffic jams.

In Freakonomics Levitt turns conventional economics on its head, stripping away the jargon and calculations of the experts to explore the riddles of everyday life and examine topics such as: how chips are more likely to kill you than a terrorist attack; why sportsmen cheat and how fraud can be spotted; why violent crime can be linked not to gun laws, policing or poverty, but to abortion; why a road is more efficient when everyone travels at 20mph; how the name you gave your child can give him an advantage in later life; and what really causes obesity epidemics. Ultimately, he shows us that economics is all about how people get what they want, and what makes them do it.

I would always remember this book for telling me, “If morality represents an ideal world, then economics represents the actual world.” And for proving to me how legalising abortion can help reduce crime rates…

A perfect treat for a reader like me. I highly recommend this book to all….

- Rahul