Tim Harford, The Undercover Economist

The Undercover Economist is an Economics classic written by Tim Harford, an English economist, and writer. It was first released in the United Kingdom by Little, Brown in November 2005. The book provides critical notes on economic values such as business failures, globalization, and foreign exchange.
The first chapter, titled ‘Who pays for your coffee?’ contends that false inadequacy modifies rental fee slightly by changing current inadequacy considerations. He starts the chapter with an engrossing discussion of coffee shop locations and commuters-turned-coffee-bar clients. Harford’s analogy of the commuters who are not the same yet are surprisingly familiar in all cities globally is very appropriate. He argues that passengers, given their short time to work and on the rush; will look for the most convenient coffee bar possible. As such, no commuter has the time and willingness to save a look out for cheaper coffee and in the process save a few coins. The implication of this is that the strategically located coffee bar enjoys a monopoly of a sort which is gifting to the owner(s). He carefully and systematically uses David Ricardo’s theory of rent in ways that those who go through the book will discover captivating. He discusses the relationship between rents in London and the Green Belt. He, therefore, comes to a conclusion that the Green Belt has created artificial scarcity on the property around London making it hard for potential users to get it. Green Belt becomes powerful courtesy of the shortage it creates.

.” His illuminating discussion in this chapter simplifies it for any economist anywhere engage in research somewhere and, when found, differentiate the victors from the losers.

In Chapter two, Harford argues that the difference between Whole Foods and Safe Ways has very little to do with the relative price of goods but who the shoppers are. At first, he discusses the way in which business engage in fragmenting their clients to realize increased profit by discriminating prices. Harford uses superstores to illustrate this point as they offer a variety of results plus excellence besides continually looking for approaches to get cost coldhearted clients be overcharged using self-discerning evidence. A method used to achieve this could involve offering brands that claim to be natural in all aspects of production. Meat from free-ranging animals is a similar distinguisher that. All these ways are considered acceptable by such stores. The author refers to this as price gouging which is acceptable. Although there are varying opinions, studies consider price gouging in which suppliers and consumers agree on the value of goods acceptable. To Hartford, value separation is both great and awful relying upon the specific situation, and refers to a few exciting illustrations that make him conclude as he does.

In a chapter titled ‘Perfect Markets and the “World of Truth,”’. Harford leads a discussion into the concept of competitive markets. He regards them as correct parameters in determining the truth of all opportunity costs as a preamble to addressing fairness. He rhetorically wonders whether situations that promote unequal cash distribution can be seen as fair. He assumes that equality can be applied to wealth or that social engineers can modify competition to result in efficiency while keeping parity. He suggests that rich people, for example, the cricketer Tiger Woods cannot be used to justify fairness and efficiency if his taxes are some few million. This is because his ability to pay the same is not equivalent to that of conventional citizens.

He further delves into externalities in the markets. In his view, the vision he has of continually appraising markets is necessary for achieving success. His idealism is evident in his suggestions of stopping movement and asserted impacts, incorporating a robust confidence in existing discussions on environmental transformation. His work is composed as though it is individuals who are responsible for the current environmental distress. He at no point considers that this perspective could raise controversy. Seemingly, markets neglect to function admirably within sight of shortage control and when individuals need information. Be that as it may, markets additionally come up short when there are externalities. In the instance in which a problem faces a community, external charges may thrive. Such likelihood is not intended to distress individuals but rather to help them review the stress they exert on others. Charges of this nature need to reflect the price that causes the externality. Individuals need permission to engage in activities they like irrespective of the possibility that others are gently bothered. In any case, we ought to likewise cease from hurting other individuals if the exertion required to refrain from it is little. An external charge, therefore, qualifies successfully as an expense.

Chapter four begins closes with a dialogue on Gross Domestic Product (GDP) economic development. In the discussion, one picks that GDP refers to the aggregate annual delivery charge of all that is needed. This is an unnecessary argument because, in the preceding chapter, the author had utilized the imposing business model to imply monopsony. These deviations in definitions may be seen as irritating despite the fact that financial analysts will recognize what he means. It is the unusual cases he once in a while makes, for instance, when he claims that Gross Domestic Product also measures such harmful things like the selling of arms at the expense of important things such as nursing childrenHe means that each weapon buy should be tallied a negative GDP exchange as opposed to a positive one. That undercuts his general thesis. As such, the readers may be left to choose the level of persuasion in this chapter.

In chapter eight, titled Why Poor Countries are Poor, he uses Cameroon as an illustration in the discussion of why emerging economies are weak . The author refuses to accept any reason brought forward to justify deficiency in the developing world. He, in fact, demonstrates that fraudulent regimes are solely to blame for economic paralysis in their nations. Harford goes ahead to ironically speculate that it may be the Cameroonian Ministry of Tourism that is responsible for discouraging tourism in the country. He says;

We all know that in most states 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. (pg 177).

He gives an overwhelming evaluation of “master help offices” arranging framework changes and different futile things in incessantly developing countries. He devastatingly criticizes development agencies that initiate unnecessary development projects in emerging countries. Citing Nepal, he argues that development projects are normally put up by individuals without interest in communal progress except for their self-centered hedonism; “…a great interest in bribes and career advancement.” He adds that Nepal lends credence to the thesis that if society is unable or unwilling to reward its producers correctly, then putting up sophisticated technical infrastructure cannot be a better alternative. It is undoubtedly bent to sink in poverty. This argument is analogous to the one captured in The Greening of Aid: Sustainable Livelihood in Practice; that it is “…the failure of development agencies to treat communities and farmers as fully capable of achieving their own sustainable management of resources.”

Harford shifts gears and argues that globalization is critical in lifting the economic status of emerging nations; especially as it helps emerging countries develop. Using an anecdote of the histories of Bruges and the Antwerp (old commercials); how they exchanged roles in economic importance, Hartford suggest that

…if you would like to be rich, then it is a good idea to forge close links with the rest of the world. If you prefer nothing to change, then it is best to have a harbor that silts up. If you would like to be rich and have nothing change, then you will be disappointed. (pg 202).

Hartford’s anecdote and discussion underscores that globalizing trends illustrates how foreign investments are good for economic growth. Hartford avoids the naïve but popular politically correct policies that seem to support buying behavior as futile means of assisting those in need. He concludes that this does not help the poor. It is globalization that does.

In a bid to anchor the proposition in support of globalization, the author concludes the book by providing a fascinating account of China’s recent economic growth. He presents a detailed account of the changes effected in the Chinese economy in the past three decades. He tries to show the reasons as to why China sunk under Mao’s erroneous reforms and why it began collecting itself from its own rubble under Deng. In this chapter, Harford uses all the earlier presented concepts to explain why the communist system that was in place in China before Deng took over failed. He also clarifies why Deng’s slow freeing of the economy to allow private enterprise succeeded substantially in the years that followed. Through a tale of a sort, he throwbacks the reader into Mao’s time to reveal the binary nature of China’s development plan. The plan involved investing heavily in industries such as steel and utilizing distinct farming methods to achieve higher yields. This was hinged on the promise that there were vast reserves of coal in the northern provinces of China. It was also based on the reason that steel, coal and other heavy manufacturing was the foundation of the massive industrial revolution that characterized western countries like the USA, Germany, and Britain. The fact that fertile land was not enough to sufficiently provide food for the massive population, this only spelled one thing; China had to devise ways of raising food production.

As it would prove, this binary economic push would catastrophically fail. Harford observes that Mao Tse-tung operated this economic policy on the secret fear it would fail (the impossible would not be realized). Between 1959 and 1961, food production plummeted due to crop and industrial failures. A great famine ensued leading to deaths of millions of Chinese. The complete running down of the private sector was exceedingly injurious. His successor, Deng was more pragmatic. He put in place programs of reforms and publicized to the populace that contrary to what they believed, subscribing to socialism did not mean that they were bound to be poor. He improved food production by upping the prices that the government was paying farmers by almost a quarter. This is 40% increment. It was the right incentive for the agriculturally fertile areas to produce more food. Harford uses this illustration to underscore the importance of the market economy. Thus, he argues that it is not Mao who had achieved the great leap forward. It is Deng who solved it by employing the power of markets and prices. The author observes that despite its poverty by the time Mao died, each month, China is lifting millions of her population out of poverty while citizens of developing countries continue to sink deep into debt each month.

In essence, the interpretation of this is that mistakes are bound to happen in market economies more than under strict centralized planning and they are quickly checked. When new ideas are put in place by capitalists, a tiny percentage of the plans many succeed. But this doesn’t spell doom in any way because the few that will achieve will make some members of the population rich thereby improving the economy. In the event that majority of the ideas flop, the country will become poor, but nobody will die as was the case of Mao Tse-tung’s time. Perhaps, it is only economically powerful countries that can experiment as Mao Tse-tung did at a large and extravagant scale and absorb all criticism for too long and even realize economic breakthrough. China has moved from socialist to capitalist and even farther yet the outcome is unclear. The manner of change witnessed has nonetheless made its internal and the global economy better. Overall, there is hope that China will simulate its economic progress in its political arena as well.

Summarily, weaknesses, including the tendency of Harford to take certain political thoughts lightly and stating them as moral choices without evidence, this remains one of the most popular economics books. In it, he provides an entertaining overview of economic rationale. He neatly dismisses those who advocate fair trade coffee protectionism, arguing that while this looks humane on the surface, it only advances the selfish interests of a few at the expense of the majority. The book can be endorsed to anyone; a practicing economist or not, who is keen on discussing the events of previous, present and, yes, future financial challenges.

Bibliography

Harford, Tim. The Undercover Economist. New York: Random House Trade Paperbacks, 2007.

Susan Rose-Ackerman and Bonnie J Palifka, Corruption And Government (New York: Cambridge University Press, 2016).

Weiss, Shira. “The Ethics Of Price Gouging”. Journal of Religious Ethics 45, no. 1 (2017): 142-163.

Forbes, Kristin, Marcel Fratzscher, Thomas Kostka, and Roland Straub. “Bubble Thy Neighbour: Portfolio Effects And Externalities From Capital Controls”. Journal of International Economics 99 (2016): 85-104.

Crouch, Colin. “Labour Market Governance And The Creation Of Outsiders”. British Journal of Industrial Relations 53, no. 1 (2015): 27-48.

Mahoney, Joseph T. “A Resource-Based Theory Of Sustainable Rents”. Journal of Management 27, no. 6 (2001): 651-660.

Conroy, Czech, and Miles Litvinoff. Greening Of Aid. Florence: Taylor and Francis, 2013.

Temin, Peter. The Roman Market Economy. Princeton: Princeton University Press, 2013.

Schumpeter, Joseph A. Capitalism, Socialism And Democracy. New York: Routledge, 2017.

Jiang, Li, Xiangzheng Deng, and Karen C. Seto. “The Impact Of Urban Expansion On

Agricultural Land Use Intensity In China”. Land Use Policy 35 (2013): 33-39.

Sbia, Rashid, Muhammad Shahbaz, and Helmi Hamdi. “A Contribution Of Foreign Direct Investment, Clean Energy, Trade Openness, Carbon Emissions And Economic Growth To Energy Demand In UAE”. Economic Modelling 36 (2014): 191-197.

Garratt, M.P.D., T.D. Breeze, N. Jenner, C. Polce, J.C. Biesmeijer, and S.G. Potts. “Avoiding A Bad Apple: Insect Pollination Enhances Fruit Quality And Economic Value”. Agriculture, Ecosystems & Environment 184 (2014): 34-40.

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