Tim Harford's "Undercover Economist" borrow a copy now.

Overview of "Undercover Economist"

A professional economist by trade, Tim Harford places the principle issues of economics before the lay reader. As a lay reader I will present the strengths and minor weaknesses of Harford's reasoning in this missive.

There is a lot of thorough economic research that has taken place in recent decades. He old standard econimcs is now supplemented by a new economics where individual consumers and government procurers are treated in a new light. Governments, corporations, and citizens in a free market economy should pay attention to the discovered "undercover" assumptions that now can be seen in everyday transactions.

 

 

 

 

 

 

 

 

Main Strengths of the new economics

When Prof. Akerlof published a famous paper about assymetric information he did so with a common place example everyone in North America could relate to. Basically he stated that the buyer when faced with a purchase to buy a used car from a used car seller, it is more obvious to us now but the seller has a lot of information the buyer is not attuned with. There can be lemons on his used car lot and there can be legitimately driveable cars on his lot. The actual worth or value of each car is not shared by both parties. Akerlof's Principle is applicable to countless situations. Yes, economics is about buying and selling. How free are the free capital markets?

The first chapter in "Undercover Economist" is simply called...... Who pays for your coffee? Harford uses the ordinary purchase of a cup of coffee to aid in presenting a summary of ordinary market influences in product pricing. The main idea is, of course, the question of scarcity. If there is less coffee available the cost of a cup of coffee is higher. Starbucks also plays the scarcity advantage by not competing with lower priced coffee availabvility but aims to sell their coffee in urban locations very close to pedestrian traffic and further from mom and pop stores who may sell for less. Advantageous locations for commerce clearly means a higher price to the customer. The landlord or property owner who charges rent will increase rents to also adnantage his assets.

Harford must have been planning a user friendly book like this one for a long time. Having worked for some major players, including the World Bank, be defintely covers a great deal of the questions we deal with today. What about the issue of immigration? Rightly so, he is on the side of long term economic results and he states that immigration is not an instrument to steal jobs from the country's present citizens. If a worker is at risk and perhaps does lose a present job because of an immigrant taking over, then there must be an adjustment employment opportunity for this worker. A free market economy is not one that is in stasis. The younger working people of today will have many different employers compared to our fathers and fore fathers who may have carried out a single employment theit whole life.

Another issue of today is the US health care situation. With private health care insurance it is in this case that the insurer may not have "good" or adequate information of a new citizen to be insured. In fact many younger US citizens may forego paying into a health insurance policy until they think they will really need one. The health insurer, therefore, may be insuring citizens that may be more at risk healthwise. The assymetric information therefore is that the health insurance provider does not know (as yet) the true risks of a newly signed up worker.

As Canadians and Europeans are aware, the all-inclusive or public health care is the established direction to take. With only a single billing to the a government for most medical procedures, it is much more efficient than the US health care system. Harforth, proposes a compromise for US health care. He beieves the US government should be in charge of larger or "catastrophic" charges to one's medical care. In other words, medical fees of up to $1000 who be covered by the individual. Public health coverage would do the rest. This idea is somewhat based on the Singapore system but I do not think this could be a solution for the US. At least Harford is addressing this important concern.

As I was saying: beg, borrow, steal or buy(?) the "Undercover Economist". Many more contemporary socio-economic and political issues are before us. What are the pluses and minusus of Globalization? Why are the poor countries poor? How did China become rich so quickly? Stay tuned.

Yes, I will try to bolg more about economic and government policy questions.













.

David Dodge CIFAR Lecture March 10, 2016

 First some photos:
On the left of the picture is Prof.Akerlof preparatory to his talk giving highlights of his new book called "Phising for Phools". I was introduced to him by David Dodge himself so I had a few discussions with both gentlemen.

 

 

At the end Dr.Akerlof signed a few books. I prefer Prof.Akerlof due to his extensive academic and research background. Yes, he was very well receieved.

 

Introducing People

 

David Dodge is the former governor of the Bank of Canada.

Stephen Poloz is the present Bank of Canada and shows support by his attendence.

Alan Bernstein is CIFAR president and hosting the lecture.

ScotiaBank president is in attendence since his bank pays for the lecture series,

Prof. George Akerlof is the Nobel prize (Economics) lecturer

 

Introductory Remarks

 

The master of ceremonies is Alan Bernstein as CIFAR president. He explains to the general audience workings of the Canadian Institute for Advanced Research. The CIFAR members include more than 340 researchers in 16 countries. These researchers include at least 80 very diverse discilplines. The missin statement of the institute might be: What are the big, complex questions facing the world and who are the best experts to investigate them?

 

David Dodge and Stephen Poloz are also given brief opportunities to say a few words. The openness and transparency that is advocated by the latest economists is relected by their words as well as by the words of George Akerlof which is to follow.

 

CIFAR is to challenge themselves to address world and local issues to deal with water security, pollution, climate change, gender equality and many more issues. The support of the economists in the room seem to relect the themes of the introductory speakers.

 

The George Akerlof Lecture: "Phising for Phools"

 

Although he is an academic researcher, George believes that complex issues can often be simplified to a certain extent. He likes to be a plain speaker and he often says that he relates a lot of facts by story telling. In other words, a concrete example that everyone can understand can be the most important tool. He states that we listen to stories, hour by hour and day to day but which of these stories stay with you for a loger time? So he would like to come up with useful metphorical concrete examples.

 

The challenge for Dr. Akerlof and the new economists is to battle the orthodoxy of the old standard economics models. A good example is the Regan-nomics idea of supply side economics. Manufacture more and more products and you will lower the selling price and the cost price and everone is happy? In order to really kick start this supply side the government agrees to less regulation. Forget about government regulatory hindrences and allow manufacturers to produce without regards to polution or consumer concerns?

 

George has to acknowledge the work done by researcher Rober Shiller. The two main difficulties he found in US-style capitalism are:...1) Too great a belief in free markets and...2) The holes or short-comings of standard economics. Akerlof is saying that for many free traders morality is defintely thrown out the window. Their motto, as everyone has heard, is that greed is good. This is the problem behavioural economists are addressing.

 

Standard economics does give us some stories to talk about. Freedom to choose and freedom to phish can lead to an equilibrium. Akerlof says that a market equilibrium is often an attainable and desired condition. In our large supermarkets shoppers go to the perceived shortest lineup and thus usually the lineups are equally long at each check out register. But where can free markets and market equilibrium fail?

 

His first example is a representative one:.....the case of the Cinnabon. This is a large cinnamon roll large beyond proportions. Many of us have seen them in our local mall. So why does one purchase a food item which may not be a logical food choice. Every body in North America seems to know about the obiesity problem and the purchase of a Cinnabon is just one small example where people can have a bad externality? The only idea might be to make sure calorie-content notices are posted? But is this targeting certain vendors or companies?

 

The next discussion is about about a research study done with Capuchin monkeys. These monkeys were set about with purchasing equivalents and asked to make food choices. Were the monkeys free choices about fruit and other good foods? No, they preferred to spend more of their "money" on fruit roll tacos with high marshmallow content. There seems to be a sugar desire in many mammalian species. But are we do be like research Capuchin monkeys or are we to make more logical food choices? Akerlof challenges us to think of having a monkey on our shoulder when we are selecting for food.

 

So what are we as an individual to look out for? George says we must be aware of four fears;

1) Personal financial insecurity

2) Financial Macroeconomic instability

3) Ill Health  (Bad food and bad medicines)

4) Bad governments

 

One of the chapters in "Phising for Phools" deals with causes of the 2008 crisis. In short, the ratings agencies completely misrepresented investments. Secondly, the role of leverage for loans had gone beyond all previous levels. George mentions that a US national study presented their free markets as leading to: dysfuntional morals AND dysfunctional national policies.

 

Conclusions for his talk may include a hope that behavioual economics will become more well known. The marriage of human pyschology and economic decision making should not be undervalued. Also, since we are social animals Akerlof believe Sociology should also be combining with Economics. Social groups are clearly decsion makers as well.

 

Thank you, Prof. George Akerlof.