"The Undercover Economist" by Tim Harford

Ever since I read "Freakonomics" 2 years ago, I've been wanting to read "the Undercover Economist. Partly, it was an attempt to see if I can still remember anything from 3 years of reading the dismal science in university. But mostly, I wanted to see if it can provide insights into my work and life. Apparently, reading things outside of your usual genre and doing things outside of your normal routine jolt your mind in ways that create new neuron connections in your brain. Anyway, I finally bought this using Gary's kinokuniya discount card one Sunday. But I digress.

This book, while not as wacky as "Freakonomics", is still a hoot to read. It covers everything from why the expensive coffee you buy on the way to work doesn't make coffee farmers rich to how globalisation is not as evil as some people would have you think. From the first chapter, I was hooked because while Harford doesn't say anything new about economics, his analysis makes for compelling reading. For example, he starts with the story of the lone coffee bar in Waterloo Station in the UK. The fact that it can charge S$4.5 for a cup of cappuccino is because nobody else has a kiosk next door charging S$4. The reason why there is nobody next door is because the manager in charge of leasing retail space has concluded that rather than have many coffee bars in the station, he will have only one. This means that he can pretty much dictate the terms of the lease since being the lone bar allows the operator to charge a premium. But get this; what Harford has illustrated is that scarcity is power. Of course, anyone who has some modicum knowledge of economics knows that, but how many people actually look at their immediate environment and conclude that it's at work. By the way, coffee farmers are not rich because they have no scarcity power. Coffee can be grown practically everywhere, unlike oil which occurs only in certain parts of the world. This explains why when top coffee producers attempted to set up a cartel (like OPEC - ha!) to control two-thirds of the world production, it failed and shut down. Whenever the cartel succeeded in raising coffee prices, new countries jumped on the bandwagon and started producing coffee.

I especially like the chapter about globalisation entitled "Beers, Chips and Globalisation". Here, he reminds us of the familiar term "comparative advantage", which basically says that countries (like individuals) should do what they do best. When a devloped country comes under supposed attack from a developing one in that the latter can offer cheaper labour; what is actually happening is that certain industries feel the pressure. And this pressure is really telling the country that its better doing more of the other industries than those which are feeling pressured because it has comparative advantage in the aforesaid industries. There is no risk of developed countries losing everything to developing ones for imports need to be paid for by exports, i.e., the former will always be good at something that it can sell to the world to buy imports. And the evil that globalisation could bring upon the world is more myth than fact. For example, there was concern that companies in rich countries will set up shop in poorer ones and produce with scant regard for the environment. But this is not supported by empirical evidence. Take China for example, pollution level has actually gone down since the 1980s when it opened its doors to the world. Historically, countries have imposed more stringent laws to regulate pollution as they develop. But I think my elucidation is a tad wanting, so you're better off reading Harford for yourself. Obviously, my comparative advantage does NOT lie in explaining economics in easy-to-understand terms.

PS: I rate this book 7 out of 10 for an interesting read that gets you thinking that economics may actually matter in the real world ; )