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The Undercover Economist Strikes Back | Tim Harford

This is a book review right? Why in this strange FAQesque fashion?

Because the entire book has been written in this way—each chapter works like an FAQ list around a theme. Tim Harford puts the reader in the driver’s seat with the economy being the vehicle and tells her to drive. The reader is allowed to ask questions to Harford to figure out how to decode the workings of an economy and then to press the right buttons to keep the engine humming along smoothly so that it stays on the path, the passengers don’t get killed through rash driving, or get bored to death by a stationary vehicle, or worse, don’t find the vehicle backing up instead of moving forward.

Oh ok. Though I must say it reminds me of the ‘Conversations with God’ book that aimed to fix my belief system. What is this book trying to fix?

Tim Harford. Photo: Bloomberg
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Tim Harford. Photo: Bloomberg

So, what’s the journey like? What do I get to imbibe along the way?

Plenty, I would say. Getting into the innards of the way the entire economy works is a difficult conversation. There are very complicated answers to simple questions like why is there a recession and how to prevent it, or if that fails, to cure one. The complication is made worse by differing camps within the macroeconomic world, that Harford says, has been very reluctant to engage with the changing world. He writes, “But four decades on from the ‘rational expectations’ revolution, there are good reasons to believe that macroeconomics is failing to incorporate some important perspectives." For example, he writes that macroeconomists have ignored the increasingly important field of behavioural economics altogether.

What did you like the most?

The way he has dealt with explaining a demand-side linked recession and a supply-side linked one. He uses the babysitting co-op example to show the former and the prison-camp recession to explain the latter. You’ll have to read the book to understand the two examples, but the babysitting co-op recession was caused by people who held back from making a trade they actually wanted to make (repressed demand) and the prison-camp recession was caused because there was less stuff available to trade (supply bottlenecks). The answers to recession will differ depending on which kind of recession it is and therefore the key need to identify it correctly.

Other than getting to know recessions better, is there anything else on the menu?

Yes. You get lots of questions, around topics that are popular currently, answered. Five questions I liked are: One, is there a limit to economic growth? Two, should gross domestic happiness not be the right measure of a country rather than adding together all goods and services not taking into account whether they are “good" or not for the society as a whole? Three, did the macroeconomists not see the 2008 crisis coming? Four, how much inflation is “enough"? Five, how do we decide that unemployment is caused by a recession or due to some structural reasons?

Are you any nearer to knowing why the world is still teetering on the edge after reading the book?

Rather than providing solutions, Harford’s aim is to give you various windows through which to look at a problem. A non-judgemental, yet non-moralistic tone is a difficult balance to achieve, but we get there. Highly recommended for the average intelligent person who has questions around macroeconomics and doesn’t know who to ask. I would even pitch it to students of economics who figure out that, unlike a true science, economics is finally about views. And whose view prevails defines the times we live in.

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