HOW HENRY FORD INVENTED UNEMPLOYMENT
Entertaining yet enlightening tales from the world of economics
Do you know why prices don’t fall when inflation falls? Or how inflation rate affects exchange rate? And how both the rates affect interest rate? If you don’t know these answers, which is very likely unless you have studied economics, it’s not your fault. The blame goes to economists and business journalists who continue to make economics less anecdotal and more analytical, less behavioural and more theoretical.
Tim Harford, a World Bank economist and a Financial Times columnist, is one of the rare breeds who have tried to make economics interesting. In his first and supremely readable bestseller The Undercover Economist, Harford had concluded by saying “economics is about people—something that economists have done a very bad job at explaining. And economic growth is about a better life for individuals—more choices, less fear”. In this sequel, Harford continues with his mission of bringing power of economics to life. And he has almost succeeded. For example, wouldn’t you want to know:
How Henry Ford invented unemployment (yes that’s true, almost)?
Or up to what point does increase in income increase happiness and at what point does more money stop bringing more joy?
Or how asking an Indian manager whether he is a Brahmin and a bachelor can reveal things about the quality of management in Indian companies that is not possible to find otherwise?
It’s through such questions that Harford explores and explains one macro economic concept at a time. The Henry Ford example explains how higher wages and fewer working hours not only increase worker welfare, but also unemployment. The income-happiness correlation is actually a way of explaining the importance—and limitation—of different ways to calculate of national income ( GDP, GNP, GNI…). The section on poor quality of Indian management is about the importance of competition in an economy. The level of competition, and not the quality of management education, is the key determinant of the quality of management in a country.
The book is a dialogue with the hypothetical reader trying to figure out the economy with a series of questions and the author providing the answers. It’s an innovative writing format, but drags in places. Perhaps 280-page dialogue is too much to sustain— interestingly. If you cut out the occasionally forced linkages in dialogue, the book is enjoyable. Read it to know how your household economy and the national economy influence each other.
THE UNDERCOVER ECONOMIST STRIKES BACK by Tim Harford Little, Brown Price: RS 599 Pages: 307