Saturday, November 28, 2009

The Undercover Economist

We all know that in most countries the Ministry of Defense is in charge of attacking other countries and that the Ministry of Employment presides over the unemployment lines. Cameroon’s Ministry of Tourism is in that noble tradition. Its job is to discourage tourists from getting into the country (p.177).

This is typical of the engaging style of Tim Hartford’s The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor—and Why You Can Never Buy a Decent Used Car! a fun and easy-to-follow trip through modern (micro) economics applied to situations around us. Hartford who works for the World Bank, also writes a column for the Financial Times, so he understands the trick is to communicate but in a way that informs rather than merely dazzles.

Thus, it contains a particularly intelligent discussion of health policy and why Singapore’s system works so well (pp109ff). One understands far more about the techwreck after reading Hartford’s discussion of stock markets (pp137ff). He explains why applying game theory is both an art and a science and how to be really clever about auctions (pp155ff). How globalisation works and why the alleged “race to the bottom” isn’t (pp201ff): the notion that competing jurisdictions compete to perform even worse is one of those bad ideas from bad theory which fairly elementary knowledge of Western history shows is nonsense. (Naturally, contemporary environmentalists are quite fond of it.) The last chapter (pp 231ff) is the best short explanation of China’s astonishing post-1979 economic growth I have seen (not least because he also carefully discusses what happened before 1979) and provides a good way of bringing together themes developed earlier in the book.

Since Hartford is a good economist, he is intelligent about what both markets and governments can and cannot do. This is especially obvious in his discussion of health policy and of China’s recent economic history. I particularly liked his elegant demolition of shock therapy: a clear case of advice from economists being over-simplistic, and in the normal way they are—by leaving out institutions (or taking them for granted). Hartford makes clear that China’s astonishing economic success since 1979 has been very much public policy-as-discovery-process.
I was also very taken by his discussion of Cameroon as an example of why poor countries are poor (pp177ff). The answer is—surprise surprise—incentives matter! Including institutional structures. In particular, Hartford shows how Mancur Olson’s stationary bandit theory of government (suitably amended to include the mass of lesser bandits under the ruler) explains so much. It struck me, reading this section, how shared ideology allows easier coordination at lower cost—it binds ruler and agents in agreed common purpose. Once ideology starts fading, corruption naturally leaps up.

Although Hartford doesn’t say so, it is also perfectly clear that the post-colonial rule has in fact been much worse than colonial rule—Cameroon is still living off colonial infrastructure—because post-colonial rule has been even more exploitative. That post-colonial rule severed all links with the functioning institutional structure of the colonial power had severe downsides.

Reading The Undercover Economist is becomes even clearer why non-economists have often given such bad development advice. They typically have little to contribute to fostering capitalist acts between consenting adults, rather more to contribute to controlling, frustrating or stopping them (particularly as that’s typically the basis of their status game). So that’s the advice they give.

Economics and economists suffer a lot of criticism. Some of it is for being jargon-heavy and highly abstract or stylised. A lot of that is fair criticism, and thankfully does not apply to The Undercover Economist. Early in the book, Hartford is inclined to use that irritating Americanism free markets when what he clearly means is open markets, but one of the strengths of the book is an avoidance of jargon and engaging concern for details of the world around us.

Much of the rest of said criticism of economics and economists is because economics and economists produce the wrong answers. That is, they are too kind to capitalism, markets, private property, corporations, etc. Most of that criticism is just ideological antipathy and not greatly concerned with how the world is or isn’t. Indeed, it typically represents irritation (or worse) with how the world is and often is part of active barriers to understanding the same (since certain answers are “ruled out” regardless of whether they are true or not*). The informative intelligence of The Undercover Economist is a fine antidote to such nonsense.

*After all, if socialism worked—rather than having the persistent pattern of declining productivity—there would be a lot more of it, and if capitalism didn’t work, there would be a lot less of it.


  1. Lorenzo, you've saved me the trouble of converting you to the works of noted Brasenose man Tim Harford ;) All I can do is now recommend his follow-up, The Logic of Life, which is equally fabulous and eye-opening, and strays into some areas that may particularly interest you (such as family policy).

  2. Ta, I have added it to my Amazon to-get list :)