The Undercover Economist

!! This is the book which every Pakistani politician, columnist, drawing room warrior, TV talking head, the proverbial man on the street, newspaper & TV reporter, and just about everyone else breathing on the streets of Pakistan should read, now, before it’s too late.

The lack of economic knowledge, and the number of economic things people get wrong even, even Harvard and Oxford educated politicians, is amazing. Newspapers, and TV especially perpetuates many economic myths and fallacies, and often make doom-laden statements which make no sense – though with our politicians it can be (and has been) said that they make no sense on anything at all, at least if you’re viewing it from a logical point of view. This book cuts through all that nonsense and lay’s bare the economic workings of much that we see going on around us.

For example, just today there is a report in the paper about how 6 major bridges are about to collapse in Karachi as the City government can’t be bothered to fix them – the poor reporter rails and rants trying to figure out why this is the case – he/she will really benefit from reading this book.

The chapter on “Why Poor Countries are Poor” is a good explanation of how Pakistan works – though a lot of Pakistani’s understand innately as to why we are where we are, Tim Harford logically lays it out, and the heuristics built up over years of dealing with bureaucracy and corruption make even more sense.

There are many other ‘readable’ books on economics being written today, but this book really stands out.

Harford writes:

bq.. “Development projects are often commissioned by people with no great interest in success but a great interest in bribes and career advancement. If the effectiveness of the project is a minor consideration, then it can hardly be a surprise if the project does not deliver on the publicly announced aims, even if it has delivered on the real aims of enriching bureaucrats.”

People have little incentive to get an education in a corrupt country, because people don’t receive jobs based upon meritocracy. Jobs are given to political cronies. Governmental institutions then become dysfunctional. The institutions tend to become more corrupt. The lesson: institutions do matter, and an objective rule of law is crucial to a country’s economic well-being. The citizens of a country ultimately pay for political corruption.

p. The books compares the the resources available to Cameroon with the US, and concludes that based solely on this Cameroon should only be 4 times poorer than the US – but in reality it’s 50 times poorer! Part of the “chapter on poverty was published in Reason Magazine”: earlier – the conclusion is excerpted below:

bq.. *Does Development Have a Chance?*

Development specialists often focus on helping poor countries become richer by improving primary education and infrastructure such as roads and telephones. That’s surely sensible. Unfortunately, it’s only a small part of the problem. Economists who have pulled apart the statistics, or studied unusual data such as the earnings of Cameroonians in Cameroon and the earnings of Cameroonians who immigrate to the United States, have found that education, infrastructure, and factories only begin to explain the gap between rich and poor. Because of its lousy education system, Cameroon is perhaps twice as poor as it could be. Because of its terrible infrastructure, it’s roughly twice as poor again. So we would expect Cameroon to be four times poorer than the United States. But it is 50 times poorer.

More important, why can’t the Cameroonian people seem to do anything about it? Couldn’t Cameroonian communities improve their schools? Wouldn’t the benefits easily outweigh the costs? Couldn’t Cameroonian businessmen build factories, license technology, seek foreign partners, and make a fortune?

Evidently not. Mancur Olson showed that *kleptocracy at the top stunts the growth of poor countries.* Having a thief for president doesn’t necessarily spell doom; the president might prefer to boost the economy and then take a slice of a bigger pie. But in general, looting will be widespread either because the dictator is not confident of his tenure or because he needs to allow others to steal in order to keep their support.

*The rot starts with government, but it afflicts the entire society. There’s no point investing in a business because the government will not protect you against thieves.* (So you might as well become a thief yourself.) There’s no point in paying your phone bill because no court can make you pay. (So there’s no point being a phone company.) There’s no point setting up an import business because the customs officers will be the ones to benefit. (So the customs office is underfunded and looks even harder for bribes.) There’s no point getting an education because jobs are not handed out on merit. (And in any case, you can’t borrow money for school fees because the bank can’t collect on the loan.)

*It is not news that corruption and perverse incentives matter. But perhaps it is news that the problem of twisted rules and institutions explains not just a little bit of the gap between Cameroon and rich countries but almost all of the gap. Countries like Cameroon fall far below their potential even considering their poor infrastructure, low investment, and minimal education. Worse, the web of corruption foils every effort to improve the infrastructure, attract investment, and raise educational standards.*

We still don’t have a good word to describe what is missing in Cameroon and in poor countries across the world. But we are starting to understand what it is. Some people call it “social capital,” or maybe “trust.” Others call it “the rule of law,” or “institutions.” But these are just labels. *The problem is that Cameroon, like other poor countries, is a topsy-turvy place where it’s in most people’s interest to take actions that directly or indirectly damage everyone else.* The incentives to create wealth are turned on their heads like the roof of the school library.

p. The book is available at “Liberty Bookstores”: at the Pakistan uneconomically affordable price of Rs. 795. There are no public libraries in Pakistan, at least that I’m aware of, so sadly this book will remain unread here, even though it would do much good. Ironically, the book contains a pretty good explanation of the absence of libraries in corrupt countries.

h4. the book elsewhere

* “Google Book page”:

* “Tim Harford’s website”:

* “Amazon”:

h4. Tim Harford on his new book, The Logic of Life

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