Wednesday, August 5, 2015

The Undercover Economist strikes back by Tim Harford

            I recently finished reading “The Undercover economist strikes back” by an English writer Tim Harford. Tim has an education in economics from Oxford University.  Although not very well known outside England is quite popular in it, mainly as a columnist for Financial Times newspaper.
          Aim of the book was to bring macroeconomics a little bit closer to a non-economist in an entertaining fashion.  The book is written like a dialogue between the writer and reader, based on real life examples.  The way topics are presented it has a lot of similarities with  “Irrational Exuberance” by Robert J. Shiller.
          Modern economy for general public is increasingly focusing on psychology, how people react and behave. As example acceptance of the wages falling in real terms, while growing in nominal ones – “money illusion”.  Tom continues on about Bank of England commenting: “ Public trust in the pound is now maintained by the operation of monetary policy”, apparently with a totally straight face.   This basically means that most of modern currencies worth something as long as people believe in it.
          The worrying fact is being a influential economist in his own country the author is advocating having inflation at about 4%, this would help to maintain nominal growth of salaries about zero.

Money has three main functions:
-          Medium of exchange, a way of avoiding the need to barter all the time.
-           Store of value.
-          Unit of account.
       There is a lot sarcasm about European governments, particularly in the UK trying to measure country success in happiness of the people, instead of GDP, longevity, quality of the education and time available to its people. There some interesting statistic on how 99% being suppressed in the US and the UK, since Soviet Union fell apart. 
        In the United States average income grew by 13.1 per cent between 1993 and 2011. It is not a lot of growth for almost 20 years, I agree. What is alarming that 99% of people (i.e. making less than $370,000 a year) saw just 5.8 increase. Cumulative difference between 13.1% and 5.8% went to 1%. The slaries of the most highly paid are now so high that it is no longer a question of symbolism: they are having a real impact on the shape of the economy.  It has to be noted that the gap between the rich and poor is growing only in Anglophone world (the UK, US, Canada, New Zealand and Australia). Advanced economies France, Germany, the Netherlands, Switzerland, Japan seen no increase at all.
        Another curious fact is British and American are outside the top fifteen in science and reading among worldwide pupils, and outside the top twenty-five in maths. In a striking contrast the UK & US universities are consistently, dominate rankings of the best higher education institutions in the world. It is easy to see how inequality might emerge from this dichotomy: the world’s two most unequal wealthy economies offer a mediocre school education to the masses and an outstanding university education to an elite.

Sixty years ago you needed to be able to shovel stuff around; thirty years ago you needed to be able to control the mechanical shovel; now you need to be able to fix the robot shovel when it breaks down.  Because of the changing technology, a skilled worker can do more than ever, while an unskilled worker is becoming something of a liability. This is why reading books matter. I recommend you to read “The Undercover Economist strikes back” by Tim Harford.

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