January 11, 2008

A book review of Tim Harford's The Undercover Economist

The tangled lock of intrinsic value, values, and people. Economics as the key?

In my second highlight piece, I was torn between writing about chapter 10 and correlating it to Colorado Springs (which I chose to do) and writing about chapter 8 and the disincentives that go along with bad governments and education. I started thinking, and figured that had I chosen chapter 8, I would have had a LOT to say, so chapter 8 is the fuel for my fire in this book review.

Location. Location. Location! I once saw a commercial for beer and the premise was something along the lines of two unattractive guys who owned a bar and were surrounded by beautiful women wearing bikinis. How do they do it? Is it the product? The decoration? How? Chapters 1 and 2 basically answer this question with economics. Economics is like a pair of goggles that can allow a person to see “The World of Truth” by following the flow of money. Such is detailed in chapters 3, 4 and 5, as well as, observing how incentives within policy and incentives in pricing can channel some of the flows of money towards efficiency. Chapter 6 addresses the “random walk theory” and how fluctuations in the stock market occur, why investors choose the stocks they do, and how scarcity functions not only in supermarkets, but also stock markets. Chapter 7 explains the basic principles of game theory, “Without stakes, poker makes no sense.” (159) Diminishing returns are the opening portals to the rest of the book; increasing returns can function in a country where “government banditry” isn’t occurring. (182)

Up until somewhere in chapter 8, I got the sense that this books functioned as a sort of economics for dummies. It reads very well, it satirizes the idea that one must be an “undercover economist” in order to see things that are plainly logical, and it builds on every previous topic, chapter to chapter. The later chapters are no exception, but as a reader, I found myself absolutely engrossed in the subject of later discussion. It raised some thought in me about the oddities of government.

For one, if a government were to be comprised of basic economic units (self-interested, rationally-driven individuals), then banditry occurs or individual growth and power. The Republicans in our nation tout that as one of their foundations: smaller government. On the flip-side, if government were to be comprised of total fairness, then there would be no incentive what-so-ever for individuals to grow and prosper, lest their efforts be pillaged by the giant industries who would stomp out small business owners. The Democrats are founded on social fairness and the preventing of giants eating the lunches of the dwarves. Chapter 8 and on basically pulled into the blender both ingredients and showed how both are necessary and both are perverted, individually.

As is the case in the example of Bruges and Antwerp, isolationism leads to failure. There is a lot of argument now about the US’s involvement in foreign affairs and how some argue for exit (to focus internally) and some argue for further invasion. For me, I think that absolute free-markets around the world could lead to examples of giant game theory being played. I don’t know if I think that that would be best, but I do think that countries are good as individual entities, should such a high-plain game occur. In fact, that’s pretty much how it is! Countries with constitutions that form a boundary of ethics and principles have a certain identity. They’ll trade and interact with other countries, and the country with the best game played will win… in whatever specific market is occurring at the time of play. It comes back to the argument of efficiency and fairness, because on such a high-plain, warfare becomes a game and the lines of fairness and efficiency gets blurred.

For me, I had (and still do for the time being) a lot of conflict about where those lines ought to be clear and where there is room for blurring. The later chapters certainly help me understand how economics is like a vein of gold running through the mountains of government, wealth, liberty, individuality, etc. I also have a better understanding of the role of an economist; observe, understand, analyze. Those who begin to manipulate and apply those manipulations to others for the sake of power and policy aren’t necessarily economists. So, this book has helped me relieve some of the self-imposed burden of trying to make a positive impact on the world around… I already am, by simply thinking rationally and voluntarily engaging in specific markets with the interest of making myself better off, without making someone else worse off; hey, if they end up worse off, then as long as I don’t coerce them into the trade, as in they engage with me voluntarily, then I assume that they did it of their own accord.

Economics, at the base, is clearly something that everyone should know. If they did, then perhaps governments wouldn’t be able to rise up and tyrannize people. If individuals were aware of economics, then they could voluntarily go into sweat-shops KNOWING that they could save up (build capital), develop discipline (labor), understand the machines of industry (technology) and then voluntarily quit and come up with a better way to work (better for one’s self, better for subsequent employees, better for the society around him/her). Something as simple and obvious as economics seems like it should be easy to ‘sell’ to people (understanding as a form of buying), that it doesn’t make sense for people to NOT be ‘undercover economists.’ Perhaps economists ARE doing a bad job at explaining economics to people, because in the end, people let themselves be harmed. That harm can be circumvented with an understanding of economics. This book is simple enough in terminology for anyone to understand, but it hits in progressive fashion (from micro to macro) all the major points of economics.

1 comment:

Alan C. Earing said...

the above blog is a double, and I don't know how to delete it!