Everyday economics

You may have noticed that this blog has gone rather quiet while I work on my next book – sorry. The FT is going to mothball it, which seems reasonable.

So – thanks for following so far. If you’d like to keep going, here’s what to do:

Here is the FT RSS feed of all my Undercover Economist columns.

The RSS feed of my website, timharford.com is here. The website feed contains columns but also all sorts of other writing, and if I start blogging again when the book’s finished, that’s where the blog will be.

And at the moment I’m far more active on Twitter, where I post links to all my writing and much else besides.

Thanks for reading; I hope the click over to a new format isn’t too inconvenient.

Reposted from Monday.

From 8th July, 2006.

If you want to be rich, you can try to set up a brilliantly successful company. Or you can steal money. Trans-parency International, the corruption watchdog, has estimated that Mohamed Suharto embezzled up to $35bn when he was Indonesia’s president, a figure that is in the same league as the entrepreneurial fortunes of Bill Gates and Warren Buffett. On a humbler scale, we all face the same choice. We can try to earn money by doing something useful, or we can try to steal or extort it from other people. A society where most people are doing something useful has a good chance of being rich; a society full of corruption will be poor.

That is a glib enough explanation of wealth and poverty, but what causes corruption? Many economists believe that corruption is a response to perverse incentives. For example, in Indonesia it takes an average of 151 days to legally establish a small business, according to the World Bank’s “Doing Business” database. This is a large incentive to pay bribes or keep a business unregistered. It is not surprising that there is a strong correlation between red tape and corruption…

Continued at timharford.com.

You may have noticed that this blog has gone rather quiet while I work on my next book – sorry. The FT is going to mothball it, which seems reasonable.

So – thanks for following so far. If you’d like to keep going, here’s what to do:

Here is the FT RSS feed of all my Undercover Economist columns.

The RSS feed of my website, timharford.com is here. The website feed contains columns but also all sorts of other writing, and if I start blogging again when the book’s finished, that’s where the blog will be.

And at the moment I’m far more active on Twitter, where I post links to all my writing and much else besides.

Thanks for reading; I hope the click over to a new format isn’t too inconvenient.

From 15th July, 2006.

My school used to offer two varieties of food. There was canteen food, which was inedible, and there were chocolate bars from the tuck shop. For two years, I had four chocolate bars for lunch every day.

These days schools are trying to outlaw the unhealthy options, but some markets are irrepressible. William Guntrip is a 13-year-old boy whose Northamptonshire school banished vending machines and tuck shop food in favour of nutritious offerings at the canteen. Guntrip spotted a market opportunity and has been buying soft drinks and sweets and reselling them in his school playground. The school is trying to stop him and claims that most students are happy with the new regime, although if that was true then Guntrip wouldn’t be making £50 a day.

Suppressing a market is a bit like squeezing a balloon – the trade will usually pop up somewhere else. The Soviet Union was full of markets. The factory in north Vladivostok would be allocated too much sheet metal but not enough coal. The factory in south Vladivostok had the reverse problem. Both factory managers would ask for extra resources but in the command-and-control system the incentive was to ask for more of everything, with little hope of success. So the managers would quietly, and illegally, do a deal with each other. Professional expediters would be sent out to barter for scarce inputs and the informal market reached a high level of sophistication…

Continued at timharford.com.

From 17th June, 2006:

It may surprise casual observers of the beautiful game to discover that one of the heroes of English football this year was a German. Jens Lehmann, the Arsenal goalkeeper, saved a last-minute penalty against the Spanish side, Villarreal, thus earning Arsenal a coveted spot in the Champions League final.

Penalties pit the goalkeeper against a lone striker in a mentally demanding contest. Once the penalty-taker strikes the ball, it takes 0.3 seconds to hit the back of the net – unless the goalkeeper can somehow get his body in the way. That is simply not enough time for the keeper to pick out the trajectory of the ball and intercept it. He must guess where the striker will shoot and move just as the ball is being struck. If Lehmann had not guessed correctly, he wouldn’t have been a hero.

Continued at timharford.com.

From 10th June, 2006:

I am becoming a dab hand at turnip soup now that Family Harford eschews supermarket mange-tout in favour of a weekly organic box. I have to confess that I miss the marvellous mange-tout, bursting with freshness and rushed to me straight from Nairobi in a battered old 747.

The mange-tout is, sadly, now beyond the pale. My tree-hugging friends condemn the purchase of anything that has travelled what they judge to be excessively long distances – in the jargon, anything with too many “food miles”. The term echoes “air miles” and the distinct impression we get is that anything you buy outside a farmers’ market has been flown first class at terrible cost to the planet.

The truth is somewhat different. Hardly any food miles are, in fact, air miles. Just under half of them are customers driving to the shops, the rest are vans and lorries shipping food around on the roads. Air and sea miles are a rounding error – 0.1 per cent for air and 0.04 per cent for sea, according to a report on food miles commissioned by the Department for Environment, Food and Rural Affairs and published in July 2005.

Continued at timharford.com.

From 2nd June, 2006:

Every now and then, the markets are gripped by a strange madness. The recent sudden sharp slump in share prices has many commentators recalling October 1987, when the Dow fell by more than a fifth in a day. What is odd about that “Black Monday” is that the collapse was so swift and yet so brief – in retrospect, just a blip in a 20-year bull market.

Small wonder that at such times we can only conclude that animal spirits are at play. What else could explain buying frenzies and desperate crashes? The FT’s own Tony Jackson recently put this received wisdom very clearly: “What we have here is the Greater Fool Theory. This says that even though you are perfectly aware a thing is overvalued… you keep buying it anyway. Why? Because the thing is still going up. When the time comes, you will find a Greater Fool to take it off your hands. Until, of course, the music stops, and the Greater Fool turns out to be you.”

Continued at timharford.com.

From 26th May, 2006:

If you’re lucky enough to visit the spectacular Kunsthistorisches Museum in Vienna, your eye may be caught by one of Pieter Bruegel’s best known works, the “Peasant Wedding”, which depicts a feast table of peasants absorbed in eating and drinking while a vast stretcher of pies is carried past.

It seems that the lives of our 16th-century forebears were not always cripplingly harsh. Economists, being economists, wish to know just how poor or prosperous life used to be. We have historical information about how much money people earned, but that is no use unless we know how much things used to cost. So economists calculate the inflation rate, which is an attempt to adjust for the effect of increasing prices.

But which increasing prices? Flipping through the Montgomery Ward & Co mail-order catalogue, which began publication in 1893, the economic historian Bradford DeLong calculates that a simple bicycle cost 260 hours’ wages for the typical worker in 1895, and just 7.2 hours’ wages in 2000. But silver spoons cost more hours of labour today than in 1895. Your personal inflation rate depends on whether you are spending your money on bicycles or spoons.

Continued at timharford.com.

From 19th May, 2006:

“There are simply too many notes, that’s all. Just cut a few and it will be perfect.” Joseph II’s friendly advice to Mozart – as presented in Peter Shaffer’s screenplay for the film Amadeus – provokes harsh laughter from any writer who has dealt with the editor’s pen. Mozart is said to have replied, “Which few did you have in mind, Majesty?”

Mozart’s urbane response made the emperor look absurd. But Tyler Cowen, an economics professor at George Mason University, seems to have a similar perspective in his new book about arts funding, Good and Plenty: “Mozart’s Don Giovanni has musical beauty, terror, comedy and a sense of the sublime, making it a favourite of opera connoisseurs. But what if consumers draw their comedy from one work, their terror from another, their beautiful music from yet another, and so on?” Cowen knows that the idea is outrageous for Don Giovanni, but not so for lesser works.

Continued at timharford.com.

From 13th May, 2006:

My wife and I have become hooked on the national addiction: pressing our noses against the windows of estate agents, visiting unaffordably nice parts of London and flicking through real-estate porn.

Sadly, my experience as an undercover economist offers few tips on judging what the housing market will do. I would guess that it will fall over the next few years, but you should pay no more attention to that claim than if it was made by a taxi driver or a waitress.

I don’t have enough confidence in my forecast to sell my house, rent while prices collapse, and then buy somewhere bigger for bargain prices. Nor should I. If house prices were obviously due for a fall next year we would all sell immediately and the fall would happen now instead. That is why the future of house prices will never be obvious.

Continued at timharford.com.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
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