Little, Brown, £20 Order at a discount from the Independent Online Shop
Book review: The Undercover Economist Strikes Back, By Tim Harford
Our chief economic storyteller turns his talents to the big picture of recession – and recovery
Friday 23 August 2013
Tim Harford is trying to do for macro-economics what he – and a handful of others – have sought to do for micro-economics. That is to de-mystify the subject, explaining in simple language what we know and don't know about the way the world economy works.
Someone needs to, for this end of the subject is in serious disarray. Most economists failed to warn adequately of the risks in the run-up to the last recession, and now are confused about the best prescription for pulling out of it. We know quite a lot about how individuals and companies respond to economic stimuli and books such as Freakonomics by Steven Levitt and Stephen Dubner have brought the subject to millions. Harford's The Undercover Economist carried on this work. But while there have been a host of prescriptive books, there has been much less of a mission to explain.
So Harford takes us through the ambiguities of macro-economics, how it developed, the ideas of John Maynard Keynes and Milton Friedman, and also contributors less well-known to the outside world such as Bill Phillips and Andrew Osward. There are implications for policy. The meat of the book is how to deal with recessions, the central question facing the Western world now. But there are also nice diversions into the baby-sitting co-op that workers on Capitol Hill in Washington founded, Henry Ford's doubling of his workers' wages in Detroit, and why cigarettes were a currency in Germany in PoW camps. The first, by the way, failed because there were not enough sitters, the second succeeded because it cut labour turnover, and the third resulted in the cigarettes used for trading having part of their tobacco extracted and smoked – the PoWs debased the currency.
As for recessions: is it shortage of demand or shortage of supply? Or both, but maybe at different times? Was the most recent recession a demand shock or a supply shock? These ambiguities are what Harford so cleverly captures. As a general proposition there is usually a conflict between the short-term and the long-term, in that short-term measures to cope with recessions may undermine long-term potential growth. He is also sensible. Macro-economists did not cause the banking crisis, for it was the job of bankers, accountants, politicians and lawyers to keep things safe. But "when the banking crisis hit, the macro-economic mainstream didn't have good models of what the economic consequences might be," even if "casual empiricism suggested they wouldn't be pretty". So they didn't really know what to do.
That common-sense approach shows through in other parts of the book. Why do we have faster-rising inequality in Anglo-Saxon economies than on the Continent? He suggests it might have something to do with the fact that the English-speaking world has very good universities but not very good schools. He is sceptical of the current fashion for focusing on happiness rather than GDP, noting that the one country that has happiness as a policy objective, Bhutan, has a dubious record on human rights. And as for the concern that growth cannot continue forever, he points out that the peak in energy consumption per person in the UK was back in 1973. It is now the lowest for 50 years.
Economists will continue to attract opprobium. Indeed, by their wild assertions they bring a lot of it on themselves. But maybe, thanks to people such as Harford, the profession will gain a better-informed audience, and a more perceptive one for its real shortcomings.
Art Piece taken off website amid 'severe security alert'
Maisie Williams single-handedly rises to the challengeTV
Academy criticised after no non-white actors nominated
tvAn expose of hooliganism masquerading as an ideological battle
artLee Hadwin can't draw when he's awake, but by night he's an artist
Arts & Ents blogs
- 1 Benedict Cumberbatch says Hollywood is better for black British actors: 'I think as far as coloured actors go it gets really difficult in the UK'
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 3 UK weather: Snow to fall in the coming week with sub-zero temperatures to last until early February
- 4 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 5 Warriors in ancient Iraq suffered Post-Traumatic Stress Disorder more than 3,000 years ago, say researchers
Heavy metal producer's corpse to be mutilated by models as per his dying wish
Mr Selfridge series 3: Actress Kara Tointon says 'We're starting to see his demise'
Benedict Cumberbatch says Hollywood is better for black British actors: 'I think as far as coloured actors go it gets really difficult in the UK'
Sia apologises for 'Elastic Heart' music video that sees Shia LaBeouf wrestle 12-year-old Maddie Ziegler
V&A removes depiction of Prophet Mohamed from website amid 'severe security alert'
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd