The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor - and Why You Can Never Buy a Decent Used Car!

• Author: Formaini, Robert

The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor--and Why You Can Never Buy a Decent Used Car! Tim Harford New York: Oxford University Press, 2006, 288 pp.

The subtitle of this engaging and sometimes maddening book is "Exploring why the rich are rich, the poor are poor--and why you can never buy a decent used car." Harford, who writes for the World Bank and the Financial Times of London, seems to want to explain to noneconomists some of the interesting theoretical conclusions that economists use to explain observed behavior and wealth patterns. The book's subtitle no doubt was created to lure such readers, regardless of whether they have reliable used ears or not, to investigate Harford's analyses. What readers will find within these pages is an entertaining stroll through some of standard economic theory's more interesting, and controversial, generalities. Harford is completely mainstream, always entertaining, but sometimes unhappily superficial.

Chapter 1 begins with an interesting discussion of coffee shop location and urban rent that applies David Ricardo's well-established theory of rent in interesting ways that readers are likely to find informative. Harford's discussion of the Green Belt's relation to London rents is reminiscent of Bernard Siegan's analysis of the effects of environmental protections on land rents in California during the 1970s. Artificially imposed scarcity changes rent at the margin by altering existing scarcity parameters. From this insight, it is easy for an economist to search for such restrictions everywhere and, when found, to isolate the winners and losers. Better public understanding of the distributional effects created by imposing artificial scarcity, in whatever form, might well dampen voter enthusiasm for such policies in the future. By explaining the generally overlooked wealth redistribution effects of such policies to his readers, Harford performs a valuable service.

Chapter 2 discusses marketing in modern supermarkets and begins with a discussion of how businesses try to segment their customers to increase overall revenues through price discrimination. Supermarkets are prime examples since they sell a variety of labels and quality and are always seeking ways to get price-insensitive customers to pay more through self-identification. One way is to offer so-called organic brands that tout their environmentally friendly production process. "Free range" meats are also popular...