Government Affairs Blog

The Undercover Economist

An economist friend of mine once told me this story.  An engineer, a physicist and an economist are marooned on a desert island.  Tired of the abundant fruit from the trees, they go out hunting.  The only thing they find is a can of baked beans.  The thought of this simple cuisine leads to a rushing of memories from home and all three are anxious to eat the beans. 

The engineer steps forward and says, “Do not worry.  I know how to get the can open”.  The engineer constructs a complex device that involves trees and rocks.  The idea is that a large boulder falls on the can from a great height and forces the lid open.  Both the physicist and economist watch eagerly for two days while the engineer builds the ‘can opener’.  As the boulder falls all three salivate at the prospect of eating the beans.  Sadly, the device doesn’t work.

The physicist says to his friends, “Clearly this needs the mind of someone who understands the heavens”.  A week later the physicist has turned sand into glass and created a series of mirrors that will in turn reflect the sun’s rays on the can.  Sadly, the devise doesn’t work.

The failed scientists turn to the economist in desperation.  The economist smiles and says, “I believe I have the answer.  Let’s assume we have a can opener”. 

This seemed to me to sum up the problem with economics.  It was theory based on assumptions of rationality that didn’t reflect the real world.  Then again, I would think that because I studied politics. 

Years later I know better and this is partly because I have read The Undercover Economist by Tim Harford – www.timharford.com – a writer who is on the editorial board of the FT, writes a Dear Economist column for the same newspaper and also contributes to the online magazine Slate – www.slate.com.

Harford’s book begins with coffee.  Why do Starbucks price coffee in the way that they do and why do we buy it?  Laying down the ground rules of David Ricardo’s economic theories he explores how markets work, why they sometimes fail, why economist can get things wrong, how governments can hinder markets as well as help them, the role of governments in market economises and why command economies cause devastation. 

If you aren’t an economist and always found the subject a little mystifying this is the book for you.  If you are an economist the book demonstrates how to explain things to repentant cynics like me. 

Highly recommended.

Simon Goldie is Head of Communication at The Chartered Institute of Taxation – www.tax.org.uk - and a member of the CIPR GAG committee