The Undercover Economist Strikes Back: How to Run or Ruin an Economy

Tim Harford's latest book, The Undercover Economist Strikes Back, is a great macroeconomic companion to his 2005 debut, The Undercover Economist (UK edition), an excellent and accessible book on microeconomics. Structured as a dialog between an economist (Harford) and a notional punter who has been put in charge of getting an imaginary economy going after a deep, long recession (ahem), Strikes Back is full of Harford's witty, clear and memorable explanations of complex and vital subjects.

I know Harford and consider him a friend, even though as he's pointed out, we don't exactly agree on economics (we don't entirely disagree either). I was educated, informed and delighted by nearly everything in this volume, but worried about what was missing. Particularly on the subject of continuous economic growth, I was concerned about the breeziness with which Harford predicted growth in economic activity by means of buying and selling information, which is a rather fraught and complex subject (and worthy of its own book, which is probably why it didn't get the explanation it deserved). One thing that's clearer every year is that the ability to charge money for information is entirely dependent on the cooperation of the buyers, who can choose at virtually no risk to themselves to get the same information for free. This doesn't mean that no one will pay, but it does point to a complicated future for information marketplaces.

I was more worried about the lack of consideration given to corruption and its place in markets, regulation and economics. Harford points out that the increasing inequality in the world is bad in many ways, and suggests multiple causes for this phenomenon, but underplays the role that corruption has played. It's pretty mainstream to observe that we are in the grip of a cycle of policies that enrich important and wealthy people, whose wealth and import then grows, who are then better positioned to influence policy to enrich themselves further still (lather, rinse, repeat). The distorting effect of corruption on sound policy is vital to understanding recession, poverty, inequality, environmental problems and many of the other phenomena that Harford addresses with otherwise exemplary thoroughness.

But let me reiterate that while I argued with what was missing from this book, I have enormous admiration for what was present. Harford is a gifted explainer of complex ideas, and his use of narrative in storytelling makes his explanations sticky and memorable. There is no one book you can read to understand macroeconomics, but Strikes Back is one book you should read to gain that understanding.

The Undercover Economist Strikes Back: How to Run or Ruin an Economy (UK edition)

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  1. There's a community radio station, 3CR, way out in 'Stralia which hosts Renegade Economist. The host, Karl Fitzgerald, proposes startlingly refreshing ideas about economic regimens. Here in North America and in Western Europe, for just about any economic discussion, the only, ahem, 'ideas' that are presented are the increasingly obviously failed Chicago School's. And that's is a dry well.

    The RE podcasts are short - only half an hour - and very much worth a listen. The next time you have to argue with a Hayekian, you can propose replacing income tax with land value tax.

  2. It's very difficult to make any statement about the failure of any school of economics since most research has no empirically verifiable predictions. What we are seeing are not failures of the economic profession. We are just observing pundits with PhDs. There is nothing inherently wrong with the Chicago school. They are ideas that exist in a vacuum with hardly any confrontation with any data at all.

    And let's not forget that there is no way at all to summarise the complexity of a single economy with a handful of headline variables such as inflation, unemployment and so on.

  3. I find I often get annoyed when the economic status of any organization is described in terms of 'growth'. For national purposes, I fail to see why the economy needs to grow beyond the rate of population increase and any inflation (or decline) in the value of the currency that was counted? If that is the base measure, and performance is seen as deviation in either direction, then it's entirely simple - we're generally doing better or worse as a gross measure. (This measure says nothing about distribution, true.) But any other measure seems focused on profits and confuses 'growth' with 'profits', which is a pretty crappy way to decide how we're ALL doing in general. Corporate profits don't equal jobs, or the health of small businesses, or whether people are eating regularly - they only equal wealth delivered to a very small group of people - all of whom are already well off enough to have interests in corporations anyway.

    Sorry if I'm simplistic. I'm definitely NOT an economist. I'm a systems and data brain. And that's why economic forecasts and reports drive me a wee little bit nuts. It always seems as if they have no real context beyond the stock market and money market.

  4. tlwest says:

    Well, one problem is that any company or nation that grows significantly more slowly than its competitors will be destroyed, either economically or politically. For companies, it's pretty obvious how you die - you simply become insignificant compared to the competition. For communities and countries, you grow poorer and poorer relative to your higher growth counter-parts.

    For communities, it means the industrious and ambitious leave, and you stagnate as your "middle-class" becomes "abject poverty" in relative terms, along with the negative social consequences that brings.

    For countries, it's a little more complex. The US has not destroyed all the other countries in the world, but the simple fact that their economic growth has dwarfed every other country has essentially forced the entire world to change their systems and culture to resemble the US system to one degree or another. Those governments that attempted to prevent that change have often been overthrown by their own people. A people that, I will add, often did not want to change their culture, but found the idea living with less growth too awful to contemplate.

    If the US chose to accept a low-growth strategy in the long term, it would simply be replaced by another country that surpassed it, and once the gap grew large enough, the US would be forced to adopt whatever strategy it had chosen to eschew.

    That's the thing about a globalized world. No one gets to opt out, and being a comparative species, rich countries conquer other cultures simply by existing and making inhabitants of those cultures feel poor by comparison.

  5. Forgive me if I'm wrong but wasn't it proponents of the Chicago School that got us into this mess?
    It strikes me that economics is not much help to actual policy decisions. The goal of governments should be keeping their citizens happy and safe. The goal of companies should be delivering goods and services to people willing to trade money for them. But it seems that the ways of measuring these results have been abstracted to the point of meaninglessness.
    (By the way, I'm a mathematician. I get your idea about theory vs. real life. I wouldn't use the theory of anti-comutative geometry that I'm studying right now to explain real life phenomena other than at the quantum level, and then only maybe.)

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