I read Undercover Economist awhile back and am just now getting around to writing a review because ... heads up to Tim ... I've been so, sniff, busy, sniff.
Here is what I said back in December when I added it to my holiday gift list:
I just sent a head's up to my spouse that I'd like to receive Undercover Economist by Tim Harford as a gift someday (it's late for X-iday but my birth-i-day is coming up). This is in spite of one of the NYTimes reviewer's few complaints (Exposing the economics ...):
... In fact, lively presentation aside, he has written a pretty standard primer, one that defends free markets to a fault and attacks government as the source of just about everything bad.
Predictably, he says that the best way to limit pollution is through free-market incentives; he then goes overboard by suggesting that environmental debates are mere "moral posturing."
I really should read the book before I offer a comment (shouldn't I?), but, here goes ... free market environmentalism doesn't work ALL of the time!
So now I've read the book and what do I think? The NYTimes review is bogus, I think. Harford does defend markets, but not to a fault, only as much as any standard issue economist does. The idea is that markets do a really good job of allocating resources efficiently except in 3 or 4 situations: public goods (e.g., national defense), market power (e.g., Microsoft ... has your computer crashed lately) and externalities (e.g., pollution).
Chapter 4*, "Crosstown Traffic," is the standard treatment of negative externalities -- when normal activities creates negative spillover effects. For example, everyone drives so the roads get congested. A business firm produces smoke in order to maximize profits and damages people's health. And what does Harford think should be done? Will the free market solve this problem? Nope. He argues that government fees and taxes should be used to reduce the negative external effects and maybe achieve some sort of economic efficiency. This is just what is in the textbooks, use incentives, except Harford is more entertaining (and less comprehensive, so this isn't a subsitute for an intro text, but maybe a complement).
And, if the government is involved, these aren't "free market" incentives. The market isn't free if the government steps in. Jeez.
And, for sure, if you are an economist, try to get your spouse to read it (if s/he is not an economist and sometimes wonder the heck where you get your nonsense).
*Chapter 4 is excerpted free in the Milken Institute Review, 2nd Quarter, 2006. You need to register but the email traffic isn't onerous.
