Could it be good for the economy to bury stale chocolate coins and then pay people to dig them up? This isn't something I've ever asked myself. But in his new book, The Undercover Economist Strikes Back, Tim Harford not only poses the question, he answers it in the affirmative. It's a typical example of why Harford is such a great expositor of complex ideas. He strips problems down to a basic level that anyone can understand. Then, using everyday examples, explains why the solutions are not what we might expect.
Harford's first book, The Undercover Economist, dealt with the economics of everyday life. If you haven't read it, then you should do so at once. Now, with The Undercover Economist Strikes Back, he's turned his attention to macroeconomics or how to run the country. It's constructed as a conversation between a hypothetical reader and the author. This style won't be to everyone's taste, but I thought it was generally helpful. Allowing the "reader" to interject saves Harford from having to ask too many hypothetical questions. It also provides him with the subheadings and short sections that he'd otherwise have to insert to break up his prose.
Although the book claims to be about macroeconomics in general, it is mainly an elucidation of the work of John Maynard Keynes. To some extent, this isn't surprising. Harford is a journalist at the Financial Times: the newspaper for big business, corporatism and European social democrats. Keynes comes naturally in this environment. It's probably not what he thought he was doing, but Harford makes a fine job of justifying the ways of Ed Balls (an erstwhile FT journalist) to man. Keynesian demand management is explained in detail (that's where the chocolate coins come in); central banks are accused of setting their inflation targets too low; and there's nothing much on the perils of debt. Only after he has enthroned Keynes as the source of all economic wisdom does Harford get around to noting that monetarists and classical economists may occasionally have a point.
None of this means that The Undercover Economist Strikes Back is not an excellent and often convincing book. Harford's explanation of why inflation is a necessary lubricant to the economy is brilliantly lucid. Likewise, when he sets out the relationship between wages and unemployment, he made me briefly wonder if the Living Wage really is such a good idea. Paying higher wages than the market demands is good for employers (who get motivated workers) and good for employees (who get paid more). But it is bad news for people without a job because it makes it more expensive to take more people on. Thus when Henry Ford offered to double the market wage in 1914, he wasn't doing it out of altruism. He wanted to retain loyal workers who'd have a lot to lose if they got fired. But by distorting the labour market with increased salaries, he also contributed to unemployment because workers without jobs were no longer willing to work for as little as they would have done before.
Towards the end of the book, Harford defends economics itself from some of its loopier critics. He politely skewers those who want to base government decisions on happiness or some other non-quantifiable factor. Gross domestic product might not be perfect, but at least it is measurable. Nor does Harford provide much succour for those who think inequality is a plot by the rich to keep the poor in poverty. And it is great to find a book on economics that doesn't feel any need to mention Karl Marx. His relevance to the modern world is about the same as that of Jean-Baptiste Lamarck to evolutionary biology.
Overall, you should read this book for its clear and concise explanation of today's economic orthodoxy. It fills in the background to the cliché "kick-starting the economy" and explains why so many people think that this is a good idea. But, given that economists fight like rats in a sack, the book gives the impression that there is more agreement on macroeconomics than their actually is. Even though he preaches the consensus, Tim Harford does have an agenda. It's just his delightful prose and interesting exposition mean that I don't mind too much.