Book club: how to be an undercover economist

Keely Lockhart introduces a pair of books that explain the two sides of economics

Tim Harford is on a mission to demystify economics. A journalist by profession and economist by training, Harford is well-equipped to make what can often be seen as a tedious and conflicting science into an easily accessible and enjoyable topic.

Although Harford has previous experience working for Shell and the World Bank, he's now more likely to be found writing his Financial Times column "The Undercover Economist" - which is the genesis of his popular series of books by the same name.

Both The Undercover Economist and his newest addition, The Undercover Economist Strikes Back, are well worth a read for anyone with the slightest interest in or full-blown obsession with the economic forces that shape our personal and collective lives.

The books cover many of the same subjects - such as free markets, poverty and globalisation - and work well as a series examining the two main fields of economics: macro and micro. All of this is delivered in Harford's style, which is both witty and easygoing, subtlely blending history, popular culture, philosophy and politics, and in no way condescending or preachy.

All the small things

Harford's first book, The Undercover Economist, was initially published prior to the financial crisis, but has recently been revised to take it into account. The aim of the book is to introduce you to the world through the eyes of an economist, teaching you some of the fundamental principles of the modern economy.

In particular, Harford uses everyday examples of coffee shops, farms and supermarkets to explain what effect scarcity has on an ability to purchase a reasonably-priced coffee. He uses some rather more memorable examples to illustrate his points - such as how drug dealers are privy to the same rules of scarcity and bargaining power as coffee shops.

The Undercover Economist also turns its attention to other more contentious issues such as immigration, poverty and climate change, all from the perspective of an economist. It makes for some very enlightening reading, and may well change your views on some of the topics, too.

But perhaps the best thing about The Undercover Economist is its discussion of the financial crisis. If there's one chapter worth reading all the way through it's Chapter 6: "Rotten Investments and Rotten Eggs". It uses what is arguably one of the best allegories ever found for describing the lead-up to the financial crisis. Harford's explanation contains enough detail to be useful, yet remains simple enough to comprehend easily, which is what makes it such an excellent read. Who else could successfully get away with explaining the financial crisis using eggs?

The bigger picture

Harford's latest book, The Undercover Economist Strikes Back, deals largely with the bigger picture economics that shapes countries and the global market. However, it does act as a good follow-on, opening up more some of the subjects tackled in the first book such as free market economics, for which Harford makes a convincing case.

Although the witty, casual tone of the first book remains, The Undercover Economist Strikes Back is structured like a conversation with the reader, who is tasked with running, or ruining, their own economy. There's a distinct nod to engineering throughout the book, which starts with the curious tale of Bill Philips, who Harford nominates as the Indiana Jones of economics for his ingenious contribution to the field. The book's worth a read simply for the fascinating history lesson on macroecnomics to be found in the story of the role Bill Philips played in developing the first computer used for economic modelling, known as the MONIAC (you'll have to read the book to find out what exactly it stands for).

As you'd expect, the book covers some hefty areas that are crucial in understanding national economic policy today. For example, Harford examines the significance of money, referencing a couple of rockstars who once burned £1 million to explain how the act of destroying money in an economy where supply and demand balance out effectively causes prices to drop.

As expected, a lot of the topics covered in the book, such as inflation, deflation, stagflation, gross domestic product (GDP) and stimulus to name a few, are pretty complex and somewhat counterintuitive. You'll need a quiet room and a large cup of coffee in order to really grasp all of the nuances of macroeconomics - even with Harford's help.

Perhaps it's the fact that even economists themselves don't fully understand macroeconomics, or because Harford is himself a microeconomist, but The Undercover Economist Strikes Back is a more challenging read than Harford's first book.

Yet The Undercover Economist Strikes Back still contains the right dose of history lessons and quirky yet relatable examples to hold your attention and teach you a thing or two about how the world really works.

What's the difference between macroeconomics and microeconomics?

Economics is divisible into two fields known as microeconomics and macroeconomics. As the name would suggest, microeconomics is focused on individual consumers and businesses. In particular, microeconomics concerns how supply and demand affects their decisions to buy or sell, and how much to charge or pay. Tim Harford's first book, The Undercover Economist, is a detailed examination of microeconomics and the principles that govern this area.

Macroeconomics is focused on the bigger picture, for example national economies. In particular, macroeconomics concerns the overall output of a country (known as gross domestic product or GDP) and how an economy functions, or fails. The Undercover Economist Strikes Back is an excellent introduction to some of the core phenomena that affect these processes on a national or international level.

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