Tim Harford's "The Undercover Economist Strikes Back"

Tim Harford is an economist, journalist and broadcaster. He is the author of The Undercover Economist Strikes Back: How to Run-or Ruin-an Economy and the million-selling The Undercover Economist, a senior columnist at the Financial Times, and the presenter of Radio 4′s “More or Less” and “Pop Up Ideas”. Harford has spoken at TED, PopTech and the Sydney Opera House and is a visiting fellow of Nuffield College, Oxford.

He applied the “Page 99 Test” to The Undercover Economist Strikes Back and reported the following:

From page 99:

The question we have to answer is whether more recessions are like babysitting co‑op recessions or like POW camp recessions. When we try to understand the economy, should we start with the assumption that it functions smoothly, like the prison camp, but is buffeted by external shocks and hamstrung by policy errors? Or should our starting point be that the economy itself is, like the babysitting co‑op, prone to malfunction—and needs Bill Phillips–style tinkerers to keep it running nicely?

You might wonder what an economist is doing talking about babysitting co-ops and prison-camps. Here's why: the the economy is a huge system. We're constantly being led astray by pointing to one part of that system - a tax cut, perhaps, or a change in interest rates, or perhaps a government stimulus program - and failing to see how every change to the economy ripples through and has all sorts of strange consequences in unexpected places. Often we simply fall back on our political prejudices, left or right - or we have to look at complex mathematical models, which frankly aren't a lot of fun to write about.

What I tried to do in The Undercover Economist Strikes Back was produce a fun economic explainer without the maths and without the political polemics: and that means understanding how these systems work in plain English. Enter the babysitting co-op and the prison camp: these are two economic systems that are simple enough to describe in words; both of them fell into recessions, but the recessions had very different causes. (These are true stories, by the way - not cute thought experiments.)

The babysitting co-op example has become quite well known thanks to its popularisation by Paul Krugman, and it's a great example of a recession caused by a misfiring economic system, curable by government intervention. The prison-camp recession is much less well known, but it's an example of an economy that worked very well on its own terms but fell into recession because of shocks from outside the economy itself - in such cases, government stimulus isn't going to help.

When you hear economists argue that government stimulus is a good idea, or government stimulus is a bad idea, what are they really arguing about? They're really arguing about what sort of recession we were in to start with - prison-camp, or babysitting co-op?

Learn more about the book and author at Tim Harford's website, Facebook page, and Twitter perch.

Tim Harford: top 10 undercover economics books.

The Page 69 Test: The Undercover Economist.

--Marshal Zeringue