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on 2 February 2006
Reading the popular press, one might be forgiven for thinking that economists are people who make forecasts which are of little relevance to most of us and almost always wrong, or who write about esoteric subjects using language and mathematics which we find impenetrable. This book is quite different. It shows, with great clarity and many examples, how economics can be used in our daily lives to understand what is happening and make better decisions.
It shows why coffee bars charge such high prices for cappuccinos; they are on prime sites, which are scarce, and much of the profit goes to the owners of those sites. Scarcity is also created by planning restrictions, trade unions, professional bodies and immigration policies, which raise prices to the benefit of some but the detriment of others.
It discusses how supermarkets seek to maximise revenue, differentiating customers who are sensitive to prices from those who are not by analysing purchasing habits, using special offers and ‘value’ lines, and by placing similar but differently priced products side by side or on different shelves.
The chapter on free markets shows how they reveal what people are prepared to pay for something, and such markets adjust – often incrementally, invisibly and in myriad ways – to changes in supply and demand. In contrast, markets that are distorted by subsidies, taxes or controls, are inefficient and result in misallocation of resources.
In many actions, what we do has a deleterious effect on other people or the environment, a so-called externality. For example, driving to work increases congestion on the roads and CO2 in the atmosphere. Alternatively, what we do can have a beneficial effect; installing energy efficiency measures reduces pollution. The book shows how economics can value externalities such as pollution and reduce them in the most economical manner, for example by auctioning pollution permits.
Many transactions involve asymmetric information, where one party knows more than the other. If we buy a used car, the seller knows more about it than we do; it may be good car or it may be a ‘lemon’. On the other hand, if we buy medical insurance, we know more about our health than the insurance company. The author explains why it can be impossible to buy a good used car, why the cost of health insurance is so high, and how the information gap between buyer and seller can be narrowed.
In Rational Insanity, it explains why share prices behave erratically, why it is difficult to make money trading them without information or insights not available to others, and why fund managers often run with the herd. But sometimes, as in the 1990s boom, the herd can be wrongfooted.
One of the more illuminating chapters is on Game Theory, which can be employed in poker, nuclear war and many other interactions. Particularly fascinating is the account of how this was used in the auction of UK third generation cell-phone licences to raise over £22 billion for the government, against an initial estimate of £3 billion. The economists who designed the auction certainly earned their fees, but may have been disappointed to see the proceeds used just to reduce the national debt.
To illustrate why poor countries are poor, the author describes a visit to Cameroon. The country is racked by corruption, and the government and its acolytes are seen to be no better than bandits. However, in the example of Nepal, one of the problems is misallocation of aid, due to failure of agencies to understand the motivations of those being helped.
The chapter on globalisation shows how much richer the world has become by trading in goods and services. It shows that in such a world we should stick to doing what are most efficient at, even if someone else can do it better. Barriers to trade, such as duties, import restrictions and subsidies, hinder this process, benefiting one part of the economy but damaging another. They can also have other undesirable consequences; subsidies to US sugar producers harm farmers in Colombia, who have turned to producing cocaine.
How China Grew Rich describes the story of the remarkable transformation, as Deng Xiaoping slowly loosened the strings of a centrally-controlled economy in ways that encouraged entrepreneurship and wealth generation, without damaging those who were less able to change. This contrasts with Russia, where the relatively rapid changes after 1990 have made billionaires but left many people worse off.
Tim Harford in not only an accomplished economist but a prolific writer. His book is enjoyable, easy to read and contains not a single equation. But, being written from the clearly-stated viewpoint of an economist, those with other perspectives may reach different diagnoses and prescriptions.
It is perhaps unfortunate that his book was published in the US in the wake of Freakonomics, which has been widely praised. But whilst the latter describes some pathbreaking economic studies, not all of which are of practical application to most readers, The Undercover Economist contains numerous examples and ideas which show that economics, far from being a ‘dismal science’, can be applied by all of us in everyday activities. Read it and find out how.
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VINE VOICEon 22 November 2005
This is an economics book that covers a lot of ground well, without resorting to mathematics or diagrams. It's probably intended for the interested, or at least curious reader. However, if you need convincing of the relevance of economics as a method for explaining "issues" it's not a bad place to start.
The author starts in a very informal manner, by describing some ways in which economics explains things going on all around the average person in the western world. Having drawn you in on the pricing strategy for a cup of coffee and the different prices charged by the same supermarket, it walks you through bigger and bigger issues all the way through through to free trade and the challenges facing developing economies.
There is an agenda that some will find difficult to accept - including the primacy of the market and how environmental and anti-globalisation can be ciphers for self interest, for example.
There are no new insights of economics as a discipline but the friendly self-deprecatory style provide an easy accessibility. I'd put the author up there with P J O'Rourke, Steven Levitt, and Paul Ormerod (the last being the most technical)
If you read the FT Magazine you will get a good idea of the author's style to help you decide whether to buy.
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This is a really good introduction to Economics.

As someone who's picked up Economics mostly by reading the business pages of the Independent it's been very useful.

The chatty style belies the fact there's lots of information to be learned from this book.

His central two points are that scarcity dictates price (supply and demand) and that prices are set according to the information available to both buyer and seller.

Along the way you'll find out why your morning coffee is priced the way it is and why it's hard to get a decent second hand car.

Although it's hard to believe in a book about economics, I found this to be a bit of a page turner and finished it in a bank holiday weekend.
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on 20 July 2006
I picked this up at the airport and nearly finished in two flights. It's an easy reading explanation of an economist's take on some everyday things and some big issues (like globalisation).

Some of the early stuff (about coffee shops etc) is really good fun. You might not be shocked by it but it is a very effective way of explaining some key economic theories in a very accessible and interesting way.

I was also quite impressed by his explanation and perception of the stockmarket. This is something that I have read quite a bit about and deal with through work and I found myself nodding in agreement with him - that share prices are largely random but sometimes there is a brief opportunity to do something logical and make money, therefore fund managers spend a lot of time money and effort trying to find that 1 in 100 chance. (I still think active fund management is on balance a waste of money but that's another argument). I also liked (though I've heard a version of this before) his comparison of arbitrage in markets to picking a supermarket queue - if one is obviously shorter people join it very quickly.

I thought the section on second-hand car dealers, which goes on to discuss firms marketing insurance products, was also very interesting. Especially the way that providers try and communicate their trustworthiness through marketing etc. Again that confirms to me my perception of how the fund management industry pitches itself to clients.

There were a couple of points where I diverged significantly from him. First on tax, where he suggests that sales and income taxes discourage effort. This is something I have argued back and forth many times and I just don't buy it. I don't think most people most of the time think about tax and therefore I don't think it influences their behaviour significantly.

Secondly I think he is a bit too starry-eyed about globalisation. I agree with the general proposition that trade is good (not bad) for developing nations. But it is not an unqualified good. Yes it provides income and employment, and yes for many people in these countries working in a trainer factory is preferable to a lifetime argicultural labour. But that is not always the case.

Similarly I found his defence of free trade against the arguments that it leads to enviromental damage pretty unconvincing. There are plenty of people with lots of business experience who are much less sanguine about the ability of markets to inherently deliver the right results. See Adair Turner's Just Capital for example.

Finally a point on the writing style. Generally this is very clear and readable. but I find the whole 'undercover economist' thing a bit annoying. either use it or don't use it. in the book he seems to forget that he has been using it and only drops it in every 30 pages or so. why bother?

those whinges aside it's worth a read.
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on 6 April 2006
It is because of the success of Amazon that high street booksellers need to provide that little bit more to entice their customers. So we now have bookshops full of stationary, furniture and coffee. When you're next out shopping and want to grab a coffee, head over to the bookshop. Whilst you are there with your Lotsamoccacaféchino, take this book from the shelf and begin to read it. You will find it connects with you immediately.
I don't know much about economics, at least I didn't when I picked this up. But I have wondered what all the fuss is about, especially when I try to keep up with the Budget, camapigns against poverty, and what's happeneing to my pension. The Undercover Economist not only makes economics easier to understand but it is doesn't clutter my mind with macroeconomic theory, fiscal rules and all that stuff.
So as you read the book, soon you will find yourself ordering more coffee, but you'll have a much better understanding of the sophisticated system that you are engaging in, and how you're being ripped off.
The book covers economics in ten interesting chapters - each with a different theme through which it introduces the reader to new understandings of the world of economics. This book will unveil to you a host of neat little theories that explain how every day life works, from why bookshops sell coffee, to world poverty with plenty in between.
What really marks this book from the rest is its humour. There are very few funny economic books and the Undercover Economist is one of them. It reveals that the grey subject matter, so long understood as the dismal science, can really be a lot of fun - if only economics lecturers would be a little less serious about it.

So read this book whilst you enjoy your second coffee: this is OK for Amazon because you can still order the book online. It's a book you'll want to keep. Is there a sequel on the way? Because whilst I learnt alot, and was pleasently surprised at times when I laughed out loud, it didn't cover pensions.
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on 1 September 2006
I have read a number of these economics for the man in the street tomes over the last couple of years, and along with Landsburg's somewhat out of date and rather more complex Armchair Economist this one stands out head and shoulders above the rest.

Harford seems to have mastered the art of making somewhat complex considerations appear extremely natural. If all economists in the media could express themselves so clearly and with such a judicious choice of examples the public would surely be better informed and more engaged with the most important issues of the day.
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Tim Harford reminds us how to look at the world around us with a more detached and perhaps more cynical view. Economics are an everyday necessity, but many of us forget just how we use them in each transaction we make. In this book are many examples of how very simply one can improve ones own transaction analysis - choose to make a better deal. It is common sense, should we bother to think about it!

However, the book is also quite repetitive, and I found that after sailing through the first hundred and fifty pages I put it down and did not find the urge to pick it up again for nearly a year. While very interesting, it is definitely not gripping reading. More to the point, if stuck on a beach for a few days, or snowed in on a ski trip (eg my first encounter with Tim Harford's later and better book The Logic of Life: The Rational Economics of an Irrational World), then it is an ideal companion in an ideal environment for one to be able to assimilate the whole book and digest it more easily. If competing with the normal distractions of daily life then the book tends to fall by the wayside, even though it could well be helpful in mastering and maybe even minimising those distractions.

I'm not an economist, but I am a realist. I've always tried to look at the big picture; what goes in here? what comes out there? does that make sense, or is it a con? This book reinforces my prejudices, or rationality - take them how you will. I think it could be shorter, or perhaps the examples could be told in a lighter vein, maybe the theories could be laid out a bit more clearly. I'm told by those who claim to know better that some of his economic theory is shaky, but as written here it seems to make sense to my muddled mind.

There is a Notes section devoted to giving the references chapter by chapter and why he chose the ideas, and also a comprehensive Index at the end of the book. But it would have helped the reader grip the themes if there had been a more detailed Table of Contents showing the sub-headings of each chapter.

I'm only giving it three stars because it is not gripping enough, and his thoughts should expressed in a clearer fashion - as he does in his other book I mentioned above (which is much closer to deserving five stars).
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on 24 May 2010
At the first glance, I did believe that the experience of reading this book would not be very bad because it is just one of the numerous casual readers on economics after all. Also, I am quite a keen reader on this subject to a certain extent, so I believe I can withstand any odd approach (unless it is extraordinarily odd).

In total, I can say the book is ordinary, well-written, well-organized, etc, but not that exciting at all, at least not as exciting as the preface has told me. I am a little bit disappointed actually. The topics covered, Ricardian rent, perfect market, efficiency, asymmetric information, etc, are quite common nowadays. Even go back in time to when this book was written, 2006, these topics are not that unusual at all. When being taken into comparison with Freakonomics, it is definitely not freak either.

Despite the not-that-exciting content and several oversimplifications, this book remains a so-so reader that deserves reading if and only if you haven't ever studied economics or haven't studied it for long. Overall, it's not that bad, but also not that exciting.
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on 2 April 2006
This book is capable of performing a minor miracle: reforming the hopelessly economically disinterested. Embarrassing though it may be, I will confess to never having been able to develop the slightest interest in economics. It is always perfectly clear (well, almost always) what economists are talking about, but it is rarely clear to me why they are talking about it. When my son gave me a copy of The Undercover Economist, I was not looking forward to reading it, but Harford captured my attention immediately and kept me enthralled all of the way through the book. He chooses examples (and beautifully and compellingly explicates them) that reveal how economics work in your life; why it matters to understand it. He explained things that had always puzzled me, and stunned me by explaining why things that I had always believed were not actually true. I think about principles from this books surprisingly often. I have since given The Undercover Economist to many friends and students who are equally economically challenged, and they have all had the same experience. I cannot recommend the book highly enough.
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on 24 July 2014
After studying Economics for 2 years at A-level and 1 year so far at University.. I regret not picking this book up earlier...

It goes over simple economic theories in a non-textbook way, the author provides persuasive and real world examples which make it really easy to understand the benefits of free market economic policies: such as reducing barriers to trade..

The book also briefly covers The Great Recession remarkably well enough for even those with little or no understanding of finance to get a simple idea of what the cause was.

I really recommend this book as an easy introduction to Economics and as an essential quick read for those studying the subject, however if you already have substantial knowledge of Economics you wont find anything 'new', instead many fun examples of theories at work!
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