I have read quite a few layman economics books since this one, but Harford's book remains the best short introduction to the discipline. This is because, as an economist who has written a column for the Financial Times, he has a notable gift for explaining technical concepts, from comparative advantage to externalities, in simple language supported by telling analogies.
The titles of the book's chapters are a sound guide to Harford's clarity of exposition � Rational Insanity, The Men Who Knew the Value of Nothing, Beer, Fries, and Globalisation, and What Supermarkets Don't Want You to Know.
Thus, he starts his book with chapter titled Who Pays for Your Coffee? explaining the way the market works by using cappuccino as an example. From this he segues into an explanation why Starbucks coffee (and by extension to T&T, Rituals) is so expensive. The short answer is location, location, location. "Rush hour customers are so desperate for caffeine and in such a hurry that they are practically price-blind," Harford writes. "The willingness to pay top dollar for convenient coffee sets the high rent, and not the other way around."
His exposition on expense is also useful, since ideologues and ordinary people in T&T continually argue that they are being 'cheated' by businesses. "How can we tell the difference between things that are expensive because they are naturally scarce, and things that are expensive because of artificial means–legislation, regulation, or foul play?" Harford asks.
Using banks as one example, he concludes that, "There are two reasons why average profits of an industry like banking might be high...if customers really value great service and reputation...Nobody is ripping anybody off...because they are offering something both scarce and highly valued." Harford notes that this analysis doesn't apply if competing banks and other financial institutions are blocked from entering a market, since this lets the established banks charge what are called 'monopoly rents'. If that is not the case, he writes, "It means that the high profits are caused by natural scarcity: there are not many really good banking organisations in the world." This also reveals the economics ignorance of several respected commentators in T&T who have recently been badtalking local banks.
Harford's supermarkets chapter flips this perspective, identifying many of the basic marketing tricks groceries use to make a profit. For example, the displays that supermarkets place in prominent positions generally consist of "attractive but profitable products," another strategy is to vary prices wildly because, explains Harford, "If some customers shop around for a good deal and some do not, it's best for stores to have either high prices to pry cash from loyal (or lazy) customers, or low prices to win business from bargain hunters." (The local grocery chain formerly known as Hi Lo actually incorporated this concept in their name.) Harford concludes, "If you want to outwit the supermarkets, simple observation is your best weapon. And if you can't be bothered to do that, you really don't need to save money."
To end with the clich�: if there's one economics book you read this year.
?Review by Kevin Baldeosingh
BOOK INFO
The Undercover Economist
Tim Harford.
Oxford University Press, 2005.
ASIN: B0040JHNR0; 288 pages.