Book Review: "The Undercover Economist" by Tim Harford
ISBN 978-0316731164
Recently, a couple of economics books that address the layman without prior knowledge in economics have been published. After their success in the US, these books have reached also Europe's bookstores. The authors set out to prove the prejudice that economics is a dull and boring subject wrong.
Tim Harford is a columnist for the Financial Times. His book The Undercover Economist is one of the notable books targeted at laymans in economy and definitely proves that economics is neither dull nor boring. On the contrary, The Undercover Economist does a brillant job in explaining some important principles in economics better than the textbooks we used when I studied economics in high-school. The greatest strength of the book is its use of non-contrived, everyday examples, that illustrate that these principles are actually playing an important role in our daily lives.
Throughout the book you will learn, for example, why Starbucks charges you ridiculous prices for mediocre coffee, how the daily traffic jams in world's metropolis could be avoided, and how China managed to rapidly develop into an industrialized nation.
Readers from Switzerland will enjoy the chapter on insurances and adverse selection, where Harford discusses the advantages of a mandatory health insurance system (as it exists in Switzerland) and explains why a voluntary healthcare insurance system is unlikely to work. Another chapter I enjoyed reading is the chapter on the auctions for UMTS mobile telephony licenses. The initiators of the Swiss UMTS auction would have profited a lot from reading the respective chapter in The Undercover Economist. Instead of the expected amount of 8 billion CHF (about 5 billion Euro) the Swiss UMTS auction made only 200 million CHF, which was the minimal bid for the 4 licenses. Using the knowledge from the book it is easy to see, why this auction was seriously flawed. First, the minimum price for a license was set much to low, given that estimated value of the licenses was 8 billion CHF. Second, there was not sufficient competition for the licenses. Only 5 companies were competing for 4 licenses. During the auction two competitors merged, leaving only 4 competitors for 4 licenses. Hardly a good precondition for a successful auction.
I can highly recommend reading The Undercover Economist. Harford manages to make the way how economists think accessible to the layman, without ever being boring. Compared to Steven Levitt's book Freakonomics. The Undercover Economist provides in my opinion more general insights into economics, while Levitt's book is quite entertaining but provides little knowledge of long-term value.