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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 Bankand 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 cars or not, to investigate Harford’s analyses. What readers will find within these pages is anentertaining 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 tofind 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 restrictionseverywhere 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 2discusses 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 brandsthat tout their environmentally friendly production process. “Free range”
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BOOK REVIEWS meats are also popular as self-identifiers, being the supermarket equivalent of “fair trade coffee” at Starbucks. Harford finds these tactics examples of price gouging and, after digesting his analysis, readers might well be inclined to agree with him. Harford sees price discrimination as both good andbad depending on the context, and cites several interesting examples that lead him to this conclusion. Chapter 3 introduces readers to perfectly competitive markets or, as Harford calls them, the “world of truth,” since money prices in perfectly competitive markets tell the precise truth about the opportunity costs of all choices. All this is true as far as it goes, but the chapter ventures intosome unsettling avenues when Harford begins discussing “fairness issues.” Implicit in his analysis (“. . . can any situation that leads to highly unequal distribution of cash be considered fair?” p. 75) is the assumption that egalitarianism applied to wealth is correct and that, somehow, economists or others with a social engineering bent can use policy—lump sum taxes, for example—to adjust the“game” of perfect competition so that it still generates efficient outcomes while maintaining equality of initial starting positions. Harford advocates, in theory, a tax on people like Tiger Woods—say a “few million”—and declares it fair and efficient because he has unfair talent to make money relative to all the less gifted among us, and the tax cannot be avoided so will not deprive Tiger of his...