Economics for Non-Economic Thinkers

Roman Kozhevnikov / Prof. Eubanks / ECON 398-OL1 / 06 Jan. 2008

To my wife:

I am writing to you about a book called The Undercover Economist by Tim Harford. I have not finished the book yet, but I am eager to read more, because it puts the information I have only seen explained in complicated charts and graphs into common sense explanations and everyday applications. For example, Harford explains how and why Starbucks’® high prices drive up the company’s rent, not the other way around. Also, he explains the naughty truth about grocery stores’ careful placement of expensive organic foods in order to discourage price-comparisons with the cheaper, non-organic options. Additionally, Harford uses the popular Jim Carey movie Liar, Liar and other scenarios as analogies to provide simple explanations of complex topics, like free markets and the healthcare system. More than all of these interesting examples, though, it seems that the most important thing to take away from The Undercover Economist is that having at least a basic understanding of economics can be both simple and valuable, and with a slight shift in our way of seeing the world around us, we can begin to think like true economists. What a relief it is that you do not need to understand all the fancy words in order to apply economic principles to your life!
For example, Harford writes that “Economics is about who gets what and why” (102). An example used in the book is that landlords in New York City, Washington, D.C., and other big cities around the world can charge coffee companies ridiculous prices to rent office space in certain locations because of the almost-guaranteed profits from the endless stream of price-blind, half-asleep customers that pass by the location every day. If selling coffee did not rake in such profits, then landlords would know that they could not demand such high rents from coffee companies.
Now, I know that we do not live in a big city or ever go to Starbucks®, but the ways that Harford analyzed the coffee situation can be used to explain the hidden truth about why that two-bedroom townhome we rented last year for $599/mo. was so cheap. We were led to believe that the landlord simply wanted to fill the space quickly, since any rent was better than no rent. However, if we had used Harford’s logic, we would have been able to see through the fresh paint and assigned parking spots to know that if living in the townhome was actually worth more, the landlord would have charged more. We found this out the hard way and now know that living with a broken toilet, without weather stripping, and with rude neighbors is definitely not worth more than $599/mo. The economics of our unfortunate situation is that the landlord got too much of our money because we signed a contract for a product that appeared on the surface, quite literally, to be acceptable. From now on, I say we follow Harford’s lead and analyze the “whys”—when house hunting, grocery shopping, or buying anything for that matter—a bit more closely.
In the other economics classes I have taken so far, many terms like “marginal,” adverse selection,” and “asymmetric information,” among others, sometimes seemed to make the subject of economics very abstract and hard to wrap my head around, like it did not apply to my own life, only to governments and large companies. Tim Harford, on the other hand, not only makes the point that economics does apply to my life (and yours); he also makes the subject of economics understandable and interesting for me; I think he would do the same for you, even though you have said many times that reading about economic theory is harder for you than listening to rap music.