- The Washington Times - Monday, December 12, 2005

THE UNDERCOVER ECONOMIST

By Tim Harford, Oxford, $26, 276 pages

Oscar Wilde once defined a cynic as “someonewho knows the price of everything and the value of nothing.” In “The Undercover Economist,” Tim Harford notes that the line is now commonly applied to economists. An ex-economics tutor at Oxford University, Mr. Harford should know. He writes the “Dear Economist” column for the Financial Times Magazine and also works for the World Bank in Washington as a lead writer on economics.

Mr. Harford’s fetching book is part a field guide to economics in action and part an expose of Economics 101 principles lurking beneath the action. As he says in the introduction, he is out to convert his reader into a more savvy consumer, no matter how hard advertising puffs, and into a more savvy voter able to dig out the truth behind the tall stories that politicians may tell.

The savvy consumer sees, for example, the wisdom of comparison shopping. He spots the role of price elasticity in supply and demand in the way that, say, Disney World discounts admission tickets by more than half to Orlando locals than that charged to mostly out-of-state tourists. The Disney people know locals are more likely to come regularly at a reduced price while the tourists are relatively price-insensitive and will likely still come at least once, even if the price is a bit steep.

And since economics early on was known as “political economy,” Mr. Harford’s insight into politics is also keen. He tells the story of a Soviet official visiting Britain not so long ago who was trying to comprehend the capitalistic system of the West, asking “Tell me: Who is in charge of the supply of bread for the population of London?” The question strikes the author as comical, and the answer — “nobody” — strikes him as dizzying. It must have been especially so to that Soviet official.

Mr. Harford ponders why countries are rich or poor. And if poor why sweatshops as stepping-stones may be preferable to nothing at all, or to their governments banning them, or for Westerners to fight poverty in developing countries by boycotting their athletic shoes or clothes. A few decades ago South Korea was in a fix of sweatshops throughout the land. But today South Korea is a world technology leader and has just built a billion-dollar Hyundai auto assembly plant in Alabama.

So Mr. Harford takes to task economic and political commentator William Greider, who, in 2001, praised New York’s city council for passing a resolution mandating the city to refuse to buy uniforms for its police and firefighters unless they were produced under “decent wages and factory conditions.” The unseen upshot, says the author, is, apart from pinching NYC taxpayers, to bump some sweatshop workers out of jobs and force more of the poor of Manila to the trash heap to scrounge for their very lives.

So bully for Mr. Harford who comes out foursquare for free trade, for seeing how David Ricardo’s trading law of comparative advantage works for mankind, for getting tariffs and import quotas down, down, down, for seeing the thrust that free trade gives not only to prosperity but to peace.

Relatedly, Mr. Harford tells how not to develop a country, and he uses Mao’s “Great Leap Forward” to build Chinese industrial and agricultural prowess with central planning and virtually forced labor as an example. Results were deadly.

But in 1976 fate intervened when Mao died. In 1978 a savior appeared — Deng Xiaoping — who publicly proclaimed it makes no difference if a cat is black or white as long as it catches mice. In the process, he helped sell the Chinese Communist Party on the need for a private sector to augment state-owned firms. The rest is history.

Partly attracted by cheap labor, foreign capital, including that of U.S. blue chips, has poured into the land. The author confesses he exaggerated when he titled his chapter, “How China Grew Rich,” but adds: “China is not rich yet. But it is growing richer faster than any other country in history.”

“The Undercover Economist” is a good starting point for the smart lay reader. It may not explore the intricacies and contradictions of, say, Keynesianism, but it does spark economic awareness of the world around us.

William H. Peterson is an adjunct scholar at the Heritage Foundation and the Ludwig von Mises Institute.

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