[book review] The Undercover Economist

Opening this book, I just hoped I could finish it. Economics is the last academic field that I can understand. After reading the whole book, however, I got something more than just finishing.

We can encounter economics everywhere, even at a supermarket. Supermarkets have their own brand, and its package looks rather crude. According to the writer Tim Harford, the humble packaging is carefully designed to put off customers who are willing to pay more. Even those who would be willing to pay five times as much for a bottle of lemonade will buy the bargain product unless the supermarket makes some effort to discourage them. I found myself too naive, figuring they just didn't invest much to lower the price. If organic food means the natural way to rip customers off, and offering discounts to the elderly and to students can be translated into charging higher prices to people likely to have jobs, does it sound too cynical?

In 2,000, the UK government with a group of economists had a successful auction for distributing the license for 'third generation' (3G) mobile-phone services. It raised ￡22.5 billion and in the process had become the biggest auction in modern history. While people felt glad at the result as it was enough to knock a penny off the UK income tax for the year, critics assumed that because the telecoms had paid so much for the licences, they would in turn charge consumers very high prices for 3G services. Their argument seemed rational to me, and I was easily persuaded that the government shouldn't have charged so much to them. Now, an economist raises a question to me - a consumer worrying about companies. If 3G licences are very cheap, will firms charge customers less? What if the government gave the licences away for nothing, would firms charge customers nothing? The answer is no. We learned from a supermarket's business strategies that firms will charge the maximum they possibly can, under any circumstances.

This is where we find the reason why economists exist. As long as companies try their best to maximize profit by any means, isn't it necessary for the public to have economists to achieve a more equitable distribution of wealth. "My aim in this book is to help you see the world like an economist," Tim Harford declares in the prologue. Not only for avoiding being getting ripped off, but also for making a just society, we need to be an undercover economist.

QOTD : There is much more to life than what gets measured in accounts. Even economists know that.