Introduction
In “The Undercover Economist”, the author attempts to explain the concept of microeconomics to ordinary readers. The book is authored by Tim Harford a British economist whose laid back method of explaining economics has made him popular among readers who are interested in the simplified ‘big picture’. The book gives readers a breakdown of the inner workings of markets in relation to day-to-day livelihood. In “The Undercover Economist”, the author uses his expertise in economic analysis to explain the complicated patterns that apply to the simple everyday routines such as buying a cup of coffee or being stuck in traffic.
Consequently, the book can be mistaken as an effort in oversimplification but there are various important insights that are apparent throughout the text. One of the things that make “The Undercover Economist” relevant and interesting is the author’s ability to make tangible connections between old-fashioned economic theories and phenomena that could easily be ignored. Therefore, the book constantly indicates the importance of theory in the demonstration of economic patterns and market revelations. On the other hand, the author refutes the popular view that economic theories can only apply to the explanations of modern and complex market patterns.
The use of simple patterns and demonstrations to explain complex economic theories is the running theme in “The Undercover Economist”. Harford also utilizes past examples of popular economic publications by showing that they are still relevant to the current economic environment. Nevertheless, the author’s wide scope of economic outlook also makes him susceptible to inconsistencies. Furthermore, the book appears to perpetuate the monopoly of popular economic theories. The influence of the internet on the modern economy is also featured in Harford’s book.
According to the author, the invention of the internet has rendered some of the popular economic theories of the eighteenth and nineteenth centuries irrelevant because the economic elements of competition and scarcity have so far become null. This essay is an appraisal of Harford’s book “The Undercover Economist”. The paper breaks down the manner in which Harford categorizes various concepts and their underlying efficiencies in the modern economic environment. The paper also compares the book with other popular concepts.
Analysis
One of the most prominent arguments in “The Undercover Economist” is the author’s view that the pioneering economic concepts are still applicable to the modern economic environment. According to the author, “economics is (partly) about modeling, about articulating basic principles and patterns that operate behind seemingly complex subjects like the rent on farms or coffee bars” (Harford 11). Consequently, there are parallels that apply to the economic environments but the concepts that are used to explain these scenarios are the same. One of the economists whose work Harford uses to prove his point is David Ricardo, a veteran economist who dealt with pioneering theories.
“The Undercover Economist” has various allusions to David Ricardo’s theories including the latter’s concept of farmers and landowners and its applicability to the modern concept of migrant issues and rates of employment in the United States (Harford 25). The similarity between Ricardo and Harford’s insights is that both economists identify the importance of labor and land as the central economic factors. In this case, Ricardo concludes that the prices of land were dictated by the amount of fertile land that was available to farmers while Harford is of the view that a rise in the number of cheap immigrant workers makes them less scarce and consequently less valuable.
Nevertheless, it is important to note the parallels that apply to Ricardo and Harford’s theories whereas Ricardo’s assertions about wages take on a deeper and more pronounced meaning. In the book titled “On the Principles of Political Economy and Taxation”, Ricardo claims that “labor, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has it’s natural and its market price” (Ricardo 67). This view contradicts Harford’s simplistic explanations about the impact of immigrant labor within the United States. Harford is of the view that an influx of immigrant workers in the United States makes labor cheap, and this means that the presence of such individuals is a discomfort for natives who sell unskilled labor.
Harford hints that on the contrary, immigration favors providers of skilled labor because they become scarce and consequently highly valued. In “On the Principles of Political Economy and Taxation”, the author uses the concept of ‘natural’ price in reference to the value of labor in any environment. Although this concept appears similar to Harford’s explanation of the immigration and labor market, there are subtle differences between the two assertions. For instance, Harford does not offer intricate explanations that show the natural price of labor in the United States. Nevertheless, it is clear that Harford was trying to build on the works of pioneering economists like Ricardo.
The author of “The Undercover Economist” also perpetuates the idea of asymmetrical data and its application to the simple day-to-day scenario. According to Harford, whenever economists attempt to apply asymmetrical data sets to simple economic ideas, they are likely to create misconceptions that can go unnoticed for several years. In chapter five of his book, the author dwells on some of the misleading concepts that have been perpetuated by asymmetrical information. For instance, the author singles out George Akerlof’s example of ‘peach versus lemon’ concept that is often used in reference to car purchasing. Harford uses this concept to show how misinformed this concept can be when it is applied to the free-market and health insurance industry.
According to the author, “free-market insurance enables consumers to conceal asymmetric information on their wellbeing and purchase insurance in accordance to their predictive health status” (Harford 107). This prompts the reader to seek out the accuracy of Harford’s book by exploring Akerlof’s economic theories. The theorist proposed the concept of peach vs. lemon as an indicator of how choices eventually dictate products. Consequently, Akerlof was indicating the complexities of free-markets. Harford does the same thing but he puts too much emphasis on the fact that free markets end up being burdensome to industries too.
The book also delves on the obvious when the author claims that the American health insurance industry is a series of economic misrepresentations. Most economists are in agreement that the health insurance sector is misconstrued. However, economists do not agree on the effective remedies that might straighten out the health provision industry. Therefore, Harford’s interest in the matter is important because his opinion might prove revolutionary. According to Harford, the secret to reigning in the effects of the free-market health industry in America lies in the country’s ability to implement a government-controlled healthcare regime.
This opinion is neither new nor isolated because other economists have provided similar solutions to the problem of the ‘irrational’ healthcare system. One interesting fact about Harford’s view is that President Obama’s administration appears to have put his views into practice through the provision of the universal health insurance ‘ObamaCare’.
Other economists who have reached a similar conclusion include Sandroni and Squitani whose work on the asymmetrical nature of the healthcare industry was published in an economic journal (150). According to these economists, the anomaly of the healthcare industry could easily be solved through a monopolistic approach. Nevertheless, Sandroni and Squitani’s solution does not mention government involvement but it aligns with Harford’s government-monopoly resolution.
Not all of Harford’s insights act as complements to the past economic concepts and theorists. On one occasion, the author disputes certain insights, theories, and models in reference to their practical application into modern environments. For instance, “The Undercover Economist” disputes the theories forwarded by Graham Bailey that the internet is not a major game-changer in economic matters. Graham is of the view that “it doesn’t matter whether you have any scarcity power, it doesn’t matter if anyone in the world can do what you do….what matters is that you get there first…it’s a gold rush vision” (Harford 144).
Bailey’s theory, on the other hand, advocated for scarcity and competition as the main market drivers. Harford shows that Bailey’s economic theory was eventually overcome by the advent of the internet. Bailey was convinced that monopoly was an inevitable concept in all markets. However, since the internet became a concept “online markets provide a nearly infinite flood of companies selling the same things, causing competition to skyrocket and scarcity to plummet” (Harford 145).
A third theorist enters the quagmire of the effects of the internet on free markets with a similar but more pronounced opinion. According to Craig, “despite the success of online retailing, the factors that enable a company to be successful online are still a research topic …this is because the Internet has become crowded with companies offering similar products and services and it has become difficult to make comparisons” (3).
The claims made by Craig align with Harford’s but they are not necessarily without theoretical opposition. The main area of understanding between these two theorists is that the ‘competition’ factor in economics has forever been changed by the internet. However, there are economists who do not agree with the idea that the internet has completely altered the elements of scarcity and competition.
In an article titled “Competition in Internet Retail Markets: The Impact of Links on Website Traffic”, the authors explicitly disagree with Harford about the effects of the internet on the scarcity of commodities and services. Instead, the authors argue that “statistical analysis suggests that the larger Internet retailers systematically outperform the smaller Internet retailers…(and) there are, therefore, clearly other influences that seem to give the larger retailers an extra competitive edge” (Ennew et al. 361).
The use of the word ‘systematically’ in the researcher’s opposition to Harford’s idea is a testament that this process is not straightforward and it is farfetched. On the other hand, both schools of thought are right to some extent. For instance, the internet has affected the concepts of competition and scarcity but it has not changed them forever. Consequently, Harford’s claim that the internet has completely changed market dynamics is an overstatement. Some examples of companies that nullify Harford’s theory include the online retail giant Amazon and internet services provider Google. These two companies do not appear to be affected by the lack of scarcity and the immense levels of competition that have been brought about by the advent of the internet.
There is one concept of economics that has to be adequately represented in all literary works: the efficiency of the system. Economic theories outline a series of structured systems that are all expected to be fair to all systems. Harford’s views about the fairness of various systems are revealed in various chapters including matters to do with healthcare systems, third-world dictatorships, and other economic-centric systems. Most economic concepts are also bombarded with the struggle to propagate systems that are either fair or reasonable. In a world that has a population of approximately seven billion individuals, Harford’s views about what is fair and unfair are important. On the other hand, all functional systems must be fair in their coverage of social demands.
In “The Undercover Economist”, the author spends a considerable amount of time addressing the issue of ‘equity and equality’. According to the author, “when economists say the economy is inefficient, they mean that there’s a way to make somebody better off without harming anybody else…while the perfectly competitive market is perfectly efficient, efficiency is not enough to ensure a fair society” (Harford 65). These views carry within them the core philosophy of economics. Some of the notable economists who are likely to agree with Harford’s claims include the authors of “Efficiency Versus Fairness: The Evaluation of Labor Market Policies by Economists and Laypeople”. This group of economists is of the view that the expectations of laymen contradict the views of economists when it comes to agreements on minimum wages.
Harford is one among a group of economists who are of the view that the concept of minimum wage only appeals to ordinary citizens and not economists (Haferkamp et al. 530). Incidentally, economists would advise workers that minimum wages only put them at a disadvantage. Harford uses the concept of minimum wages to relay the concept of fairness and efficiency. Therefore, minimum wages are fair but they are not economically efficient. According to Harford, economists are primarily concerned with efficiency while observers are more preoccupied with fairness.
The author makes reference to stable dictatorships and their tendency to be of little use to an economy as compared to unstable dictators. Other mainstream economists would dispute this argument about fairness and efficiency mostly because they have not operated in environments where this concept can be adequately represented. According to Stiglitz, all dictatorships represent unfairness and they do not have the capacity to be efficient (23). In addition, all manner of poverty is a byproduct of inefficient economic regimes.
Harford does not wholly subscribe to this school of thought because he believes poverty can easily be caused by ‘fairness’ or efficiency: “the problem is that Cameroon, like other poor countries, is a topsy-turvy world in which it’s in most people’s interest to take action that directly or indirectly damages everyone else” (45). The central idea in Harford’s argument is that economists and other classes of people will perpetually disagree over the concepts of efficiency and Fairness.
Either by nature or by design, “The Undercover Economist” also delves into matters to do with the environment and the modern economy. In a characteristic whimsical outlook, the author presents an interesting theory on the ‘externality’ of environmental costs. The author gives an example of how companies could be made to buy the right to pollute (thereby quantifying pollution) instead of having to pay for the aftermath of pollution. Harford sees the need to make people pay for their environmental degradation without the victimization that most economists point out.
For example, the author of “Economics of the Public Sector” claims that positioning people through the concept of property rights enables governments to track the external costs of environmental pollution (Stiglitz 34). This scholar provides the example of a neighbor who should be made to pay for dumping trash in his neighbor’s lawn. This direct victimization is the concept that Harford considers to be more harmful than helpful in the drive to preserve the environment. In another example, Harford advises that individuals’ rate of Carbon Dioxide emission should be determined using the number of trips as opposed to mileage.
According to the economist, the secret to combating environmental degradation by environmentalists within the realm of economics is to focus on “externality costs and other economic elements more often in their argument whereby they would rely less on an emotional/moral crutch and be more effective as a result” (Harford 97). Unlike Chichilnisky and Heal’s argument, Harford’s solution would ensure that individuals conserved the environment during their day-to-day activities albeit unknowingly (55).
Conclusion
Harford’s book manages to address a myriad of economic patterns that apply to modern lifestyles and environments. Nevertheless, the author uses calculated steps as he presents his themes and analysis. Therefore, the book becomes palatable to readers who do not have a vast understanding of microeconomics. Some of the theories that are forwarded by the author are beyond reproach while others contradict the views of other economic scholars. There are also some inconsistencies that apply to the author’s opinions even as he cites veteran economists and theories.
Works Cited
Chichilnisky, Graciela, and Geoffrey Heal. Environmental Markets: Equity and Efficiency, New York, NY: Columbia University Press, 2013. Print.
Craig, Standing. Electronic Markets: Benefits, Costs, and Risks, New York, NY: Palgrave Macmillan, 2009. Print.
Ennew, Christine, et al. “Competition in Internet Retail Markets: The Impact of Links on Web Site Traffic.” Long Range Planning 38.4 (2005): 359-372. Print.
Haferkamp, Alexandra, et al. “Efficiency versus Fairness: The Evaluation of Labor Market Policies by Economists and Laypeople.” Journal of Economic Psychology 30.4 (2009): 527-539. Print.
Harford, Tim. The Undercover Economist, New York, NY: Oxford University Press, 2012. Print.
Ricardo, David. Principles of Political Economy and Taxation, Georgetown, DC: Bell and sons, 1891. Print.
Sandroni, Alvaro, and Francesco Squintani. “Overconfidence and Asymmetric Information: The Case of Insurance.” Journal of Economic Behavior & Organization 93.1 (2013): 149-165. Print.
Stiglitz, Joseph. Economics of the Public Sector, New York, NY: W.W. Norton, 2000. Print.