In one of the numerous flights of our recent vacation in Australia and NZ, I picked this book up in the airport's bookstore, and began browsing through it. Imagine my amusement when I read the first paragraph of the introduction:

I would like to thank you for buying this book, but if you're anything like me you haven't bought it at all. Instead, you've carried it into the bookstore café and even now are sipping a cappuccino in comfort while you decide whether it's worth your money.

How can anyone resist such a beginning ? So I continued browsing for about 15 minutes, opening it at random places and reading a few paragraphs. I decided I like the book a lot, but the airport bookstore price is definitely inflated, so I'll buy it on Amazon later. Which I did, and now comes this review.

I must begin by saying that I liked this book very much. Not to cut suspense, since the review is obviously favorable all along, but just to set a positive tone for the start.

On the surface, "The Undercover Economist" is just another popular economics book, of the kind that is quite common lately (Freakonomics is one example that immediately comes to mind). However, once you finish reading it (paying attention all the way, of course), you realize it presents some relatively deep ideas, explaining them very thoroughly and logically connected pieces from different aspects of economics.

The book begins by a thorough overview of supply and demand, providing simple and befitting examples, both from real life and imaginary. Next, it treats the topic of price targeting (also called "differential pricing") - with really a huge assortment of examples from diverse fields. Then, it explains about free markets and what's good about them.

The connection of market freedom to "finding the truth" is enlightening, and becomes even more so while reading further. The author then moves to more macro-economic topics, discussing globalization and the economic situation in third world countries, such as Cameroon. Finally, he concludes the book with a thorough treatment of the changes in the Chinese economy in the past 30 years. This is the best part of the book, in which all the concepts presented in previous sections come together to explain why the communist system prevailing in China before 1976 failed, and why the gradual freeing of its economy in the years that passed since succeeded on a magnificent scale.

Here are another few topics that I found interesting, in no particular order:

  • Why is wine always very expensive in restaurants ? Because one of the big costs in a restaurant is table space. Restaurants would therefore like to charge customers for dawdling, but because they can't do that, they charge higher prices for products that tend to be consumed in longer meals, like wine, appetizers and desserts.
  • The story of how the Environmental Protection Agency (EPA) in the USA reduced sulfur pollution problems in the 1990s by cleverly issuing "pollution permits" that factories could buy. This way, the "truth" was exposed - the real costs of pollution reducing equipment to companies.
  • Did you ever think about what an "efficient economy" means. Simple. If we can point to a change that could make at least one person better off, and nobody worse off, we (economists) say that the current situation is inefficient. This simple explanation is much deeper than it first appears, as it sets one of the basic rules of free markets - in an efficient market, everyone lives on the margins (excepts of one having scarcity power). If some field is too profitable, more competitors will enter it.
  • There is an excellent treatment of the problems with the USA's current health care system that's worth reading, not only for Americans.
  • When we bash dictatorships in third world countries, we must keep in mind that not all dictatorships are equally bad. In fact, stable dictatorships damage their country's economy much less than unstable ones. This is because stable dictators expect to stay in power for a long time, and hence don't have an interest to rob the economy too much, because that will reduce from their future profits. Unstable dictators, OTOH, are the worst kind - they just come to power, steal as much as possible and disappear. The author cleverly compared stable dictatorships to biological viruses, that have over time evolved not to kill the host body, but rather to use it in order to feed and reproduce to other bodies.

As I mentioned, I really liked this book. In fact, I think it's one of the best popular-economics books I've ever read. It is very highly recommended.