Book Review: The Undercover Economist

The Undercover Economist by Tim Harford

I no longer enjoy popular physics books. Usually I quit part way through thinking “I’d rather just be rereading my textbooks,” since I’m at the level where I’m aware of how much deeper and more precise is the topic at hand (and how many caveats there are) that just can’t be covered in a popular-level introduction. A friend of mine recently expressed a similar point:

I was on a 60-person camping trip a while ago and some random dudes started talking about infinity and up-arrow notation and Graham’s number. I had to get up from the campfire and leave.

Now when it comes to other fields where I don’t have the same background I usually greatly enjoy popular-level introductions. The marginal return of insights gained per words read for me in fields like biology, philosophy, linguistics, etc is high. But as I gain some semblance of mastery in any particular discipline, I more and more would rather just be reading textbooks or even papers in the literature. If you will, one of my goals in life is to increase the number of things I have to walk away from the campfire over. Economics is starting to be that way for me.

I came across a quote from EconLog that I think characterizes this point very well, from the commenter “enronal”:

…I think economists are too apologetic about their tools, cost functions nothwithstanding [sic]. I started Econ 101 believing the price system and the economy were a fascist, corporate plot. Cost functions, along with supply and demand functions and their relatives, showed me I’d been seeing as through a glass darkly. Those relentlessly logical pictures taught me more in a few pages than all the trendy, lefty sociological tomes that till then had me believing I was a sharp intellectual. The hyper-mathematical graduate economics for math’s sake may be marginally relevant, but the basic tools of economics are nothing to apologize for.

The Undercover Economist is I think quite good as a popular econ introduction, and a number of professional economists have expressed the same opinion. In particular I really enjoyed the discussion of relative scarcity and marginal land in the first chapter as was developed by David Ricardo in 1817. It alone I think is worth the price of admission, and the principles are quickly applied to coffee shops and the oil market.

Subsequent chapters deal with a variety of interesting and fundamental ideas in economics, including price discrimination and opportunity cost, how prices in a competitive market act as signals of information that lead to efficiency, the existence of positive and negative externalities and what if anything to do about them, and markets with incomplete information. There are chapters devoted to auction theory, why bad institutions trap countries like Cameroon in a perpetual state of poverty, why economists are so pro-free trade, and on how China became rapidly richer when it abandoned doctrinaire Maoism and began taking the leash off of its markets.

All good stuff, though I felt the lack of depth required by a shortish popular intro. For example there’s much discussion about how to structure medical incentive schemes to deal with the high cost of medical care, but little attention directed at why medical care is so expensive to begin with and what if anything “we” could do about it. I don’t blame these books for not covering everything in suitable detail; I’m just saying that for me it’s becoming more and more the case that I should just read the actual textbooks now.

There is however room for what we might think of as a “popular-level textbook.” Something that follows the same logic as an actual textbook but is lighter on the mathematical details. For econ I think that David Friedman’s Hidden Order: The Economics of Everyday Life fits that bill, since there’s a much greater exploration of analytical tools like supply and demand diagrams as compared to The Undercover Economist (I’m currently in the midst of reading Hidden Order). When friends of mine who are complete econ neophytes ask for book recommendations, my current advice is to start with the more narrative Undercover Economist and then chase it with the logic of Hidden Order.

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