Wednesday, 4 June 2014

Economics is NOT the dismal science. It’s just not.


Because you’re on this site, I assume you wouldn’t click away if I write horrible economic words like: recession, inflation, stimulus, output gaps, or GDP on this page?

You would? Hold up, that’s the old economics. The new economics is insightful and fun. So much fun. You end up seeing the world in a different way. And I don’t mean forgetting to put your glasses back on.

The whole world seems somehow clearer thanks to Tim Harford’s latest book The Undercover Economist Strikes Back: How to Run  or Ruin  an Economy.

Tim Harford isn’t the only popular economics writer around but he’s probably the best. He has that strange ability to make you never see movie popcorn in the same way.

And just before you kick the bucket, you’ll probably end up telling your friends and family to burn all your money rather than give it away. Seriously. You can tell them it’s for the good of the country.

Mr Harford excels at painting esoteric ideas of microeconomics (the everyday stuff) into understandable prose. His latest book tackles the macroeconomics of life (the big stuff) in an equally understandable way.

You’re not going to be taking an Economics 101 exam at the end but you’ll get more acquainted with the science, and that’s probably a good thing.

There has been a string of excellent popular economics books over the past decade mixing the stultifyingly boring with real-life fun to give the reader new thinking tools. Most of Mr Harford’s material is highly accessible if you have a passing interest in current events (no economic background needed).

It says on the front of the book that Tim Harford is probably the UK’s closest answer to Malcolm Gladwell. But not in the way you might think. He’s not a journalist – he’s a real person with real expertise.

He’s not going to go all “Gladwell” on you and follow a cool but admittedly crazy idea down an unfamiliar path. Instead, Mr Harford beckons you behind the curtain of life by teaching you the basics of economics in the most enjoyable way possible: by telling stories.

His goal is to explain not how to price a Starbucks coffee (he’s already done that) but what makes an economy tick. That’s a tough ask, especially in a few hundred pages. There’s a lot going on in an economy and thankfully Mr Harford is smart, funny, and clear. I’ll pick only one section of the book which proved truly relevant.

Recently, New Zealand embraced a great deal of discussion about poverty. While it’s impossible not to see starkly different standards of living here, the measurement of poverty has always been confusing. In one section, Mr Harford explains why by exposing the macroeconomic theories of relative and absolute standards underpinning the debate.

He challenges his reader to define who counts as "poor." Should the "poverty line" be fixed, or should it adapt to society's evolving definition of a minimally tolerable lifestyle?

If you say there is an absolute standard, people in New Zealand who eat three meals a day but can't afford an iPhone aren't poor. That can't be right, he says.

Ok then, let's have a go with a relative standard. The OECD defines the poverty line as 60% of median income. Seems sensible – except, Mr. Harford points out, if you doubled everyone's income, the same number of people would still be "poor." And that can’t be right either.

Mr. Harford reckons the answer is an absolute standard with reasonable fine-tuning occasionally. But perhaps nerdy macroeconomists don’t have the human gifts to make such calls.

That’s where the reader comes in. If you know how to use the thinking tools behind economics, then you’ll have a better chance of making an informed decision on important government policies.

Tim Harford’s book, like many others in the genre, gently shows you the engine behind everyday life. And it doesn’t even feel as if you’re learning. Perhaps that’s the best part.

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