From the WSJ Opinion Archives
BOOKSHELF
The Lessons of Popcorn
A new book does an admirable job explaining why markets work.
If you're a lawyer, an accountant or a cabdriver, you probably spend more time talking about money than, say, the geometry of space-time or the regulation of gene expression. How odd, then, that my local Barnes & Noble carries about 80 layman's books on physics and another 80 on evolutionary biology but only four or five on economics.
A dozen years ago, the pickings were even slimmer. The unfilled niche inspired me to write a book called "The Armchair Economist" and David Friedman to write a book called "Hidden Order." In the meantime, several new entrants have arrived to compete within that same market niche, and some of them are quite good. Tim Harford's "The Undercover Economist" is one of the good ones.
I should note that Steven Levitt's recent and best-selling "Freakonomics" is of a different genre entirely. "Freakonomics" is rollicking good. But it is less about economics than about the mind of Steven Levitt, who is out to dazzle you with facts--about everything from test scores to Sumo wrestlers--while Mr. Harford (like Mr. Friedman and me) is out to dazzle you with ideas.
Mr. Harford's first several chapters cover standard textbook material without ever (or at least hardly ever) getting too dry or textbooky. We learn about Ricardo's theory of rents, comparative advantage, price discrimination, externalities, moral hazard, random walks in stock market prices, and the theory of auctions, all illustrated with real-world examples, often well chosen and entertaining. Mr. Harford has got all the major stuff right and only some very minor stuff wrong. For example, he says that sellers offer discounts when customers are very price-sensitive. Actually, they offer discounts when some customers are more price-sensitive than others. If all customers were equally price-sensitive, there would be no reason to favor some over others with a lower price.
If I have a quibble, it is that Mr. Harford occasionally kowtows to conventional wisdom even when he is out to skewer it. He calls it an "uncomfortable state of affairs" that in a pure market system whoever pays the most gets to send his children to the best schools. Why is that uncomfortable? Somebody has to send his children to the best schools. Why shouldn't it be the people who pay the most? And he repeats the canard that when American workers are hurt by free-trade agreements a "civilized society" should support and retrain them--without acknowledging that you can't be hurt by a free-trade agreement unless you're overpaid to begin with.
Much of the basic material in Mr. Harford's book--often accompanied by the same examples--can be found in my own book or David Friedman's. For example, all three books ask why popcorn is so expensive at the movies; all three explain why the "monopoly power" of theater owners is a bad answer (a better way to exploit such monopoly power would simply be to jack up prices at the box office); all three conclude that theater owners are trying to target price-insensitive customers. But only Mr. Harford ignores the fundamental riddle: Why should popcorn eaters be less price-sensitive than the rest of us? I don't know the answer to that riddle, but there is a lot to be learned by exploring it. Instead, Mr. Harford pretends that it doesn't exist.
In its last three chapters, however, "The Underground Economist" distinguishes itself from the pack with a lively and insightful discourse on global poverty and what can be done about it. Mr. Harford takes you along on his trip to Cameroon, where his reporter's eye limns the heartbreaking poverty, and his economist's sensibility puts it all in perspective, making it blindingly clear how corruption and foolishness at the top translate into famine and hopelessness at the bottom. This part of the book is gripping. But here, too, I have an alternative recommendation: If you really want to understand global poverty, you should probably read William Easterly's "The Elusive Quest for Growth." If you want a quick overview, you can't do better than "The Undercover Economist."
Yet how odd that Mr. Harford pollutes this section with one extended analysis that seems to defy all economic logic. According to Mr. Harford (who cites the political scientist Elinor Ostrom), modern concrete dams have ruined agriculture in Nepal, and here is how: The agricultural system depends both on dams (essential for farmers both upstream and downstream) and on irrigation canals (essential only for downstream farmers). Farmers cooperate to maintain both the dam and the canals. Upstream farmers help with the canals in exchange for help with the dam. But when you bring in a modern maintenance-free dam, the agreement falls apart and the irrigation canals fall into disrepair. "The upstream farmers don't need help," Mr. Harford notes, "so the downstream farmers no longer have anything to offer."
Huh? After almost 200 pages of explaining how markets arise naturally to solve this sort of problem, Mr. Harford suddenly tells us that if you can't trade maintenance work then you can't trade anything. But surely some alternative market arrangement will arise to replace the old one. After all, we know that the value of the canals is greater than the cost of maintaining them; otherwise there would have been no agreement in the first place. Instead of endorsing Prof. Ostrom's analysis (or, more precisely, his version of Prof. Ostrom's analysis), Mr. Harford should have taken the opportunity to explain why it can't be right. It can't be right because markets work and, for the most part, Mr. Harford has done an admirable job of explaining how and why they do.
Mr. Landsburg, an economics professor at the University of Rochester, is the author of "Armchair Economist: Economics and Everyday Experience." You can buy "The Undercover Economist" from the OpinionJournal bookstore.
