Tim Harford The Undercover Economist

Articles published in April, 2011

Should I save on a shave?

Dear Economist,
I was thrilled, like many men, with the arrival of three-blade shaving razors. But, of late, I feel that the cost of shaving with the three-blade is high compared with the value derived from it.
Do you think it would be better to shift to a twin-blade razor which will certainly save costs and might also give the desired shaving results?
Regards,
R Sriganesh
Dear R Sriganesh,
Hang on, “thrilled” is putting it a bit strongly, isn’t it? I don’t know anyone whose pulse was set racing by the arrival of the Mach 3. It was, at best, mildly intriguing. Don’t get me wrong, it’s a decent razor. But let’s be clear, the main innovation wasn’t the progress from two to three blades, was it? It was from no blades at all to one. That’s really where the shaving revolution started. It’s what we economists call diminishing returns.
It may help you to note that razors are sold in a classical two-part pricing scheme: the razor itself is cheap, perhaps even subsidised, and the blades themselves are expensive. The same is true of printers and printer ink. All this means is that you can try out an alternative, two-blade or one-blade razor without undue expense.
And if you decide that after slumming it with a Bic disposable that you really need the seven-blade razor which plays music and gets rid of unwanted lipstick stains on your collar – I am sure the razor manufacturers will be “thrilled” to oblige.
First published in “Mens Health”

Is it time to outsource cities?

Cities are back in vogue – intellectually, at least. (In the real world, cities were never out of fashion. The world’s population has been moving to them at a more or less steady clip for thousands of years.)

First there was the late Jane Jacobs, who argued that while nations were political units, the proper way to think about economies was to start with the economies of cities. Glasgow, Liverpool, Manchester and London are entirely distinct economies – Jacobs even suggested that they should be using separate currencies.

More recently, the journalist David Owen explained in The New Yorker that city living – with compact apartments and public transport – was far greener than the typical rural or suburban lifestyle. This point should have been obvious, but wasn’t.

Now the Harvard economist Edward Glaeser announces The Triumph of the City in a new book, while the journalist Greg Lindsay and business school professor John Kasarda offer a book about the Aerotropolis – a new breed of cities “umbilically connected” to their airports. Nassim Nicholas Taleb predicted that nation states would be supplanted by city states by 2036.

But on this question, no one is more radical than Paul Romer. Romer’s first career was as the most influential growth theorist of his generation; he was then a successful entrepreneur. Now he beats the drum for “charter cities” as a radical solution to the problem of poverty.

Like all cities, charter cities are built on land, populated by people and run according to certain rules. What is unique is that the land, the people and the rules might come from entirely different sources – in one of Romer’s more controversial illustrations, Canada buys the Guantánamo Bay lease from the Americans and establishes a kind of new Hong Kong populated by Caribbean workers.

Romer now seems to be downplaying the Guantánamo angle, but still emphasises the idea of a guarantor country – France and Norway helping run a city state in Mauritania, for example. It sounds crazy, but he has his reasons. When I met Romer in London last year, he was concerned about the credibility of the city’s institutions. Because a city is costly to build, much of its infrastructure will last for decades. Romer argues that investors will not bite without a steady (Canadian? Norwegian?) hand on the tiller.

Perhaps he is right, but there is another angle to charter cities, which offer the opportunity to experiment with new rules that do not apply elsewhere. Cities such as Singapore and Hong Kong have prospered because the rules there have been conducive to doing business. Perhaps countries do not really need to outsource new cities; perhaps a special economic zone will be credible enough.

Take New Songdo, a conurbation close to Seoul. For Greg Lindsay, New Songdo is an aerotropolis, notable for its proximity to Incheon airport. I think its quasi-charter status is more important: South Korean politicians privately admit that New Songdo is attractive because businesses can be offered light-touch regulations without seeding a political storm.

Romer is not immune to the charms of air travel – he mentioned to me that 40 per cent of trade, by value, is now by air – but his charter city vision emphasises an angle largely overlooked by the global elite: that “the market in the city business right now is poor people”. Romer regards Dubai, because it is merely a millionaire’s playground, “as a failure, even before the bust”.

There, to me, is the real radicalism and the real insight: that building cities could become a business in its own right. And as with any dynamic industry, some of these city-businesses will flourish magnificently. Others will fail.

Also published at ft.com.

The original version of this story should have referred to a hypothetical charter city in Mauritania, not Mauritius. The text has been corrected. – TH

What’s new in the second edition of The Undercover Economist?

When I was first writing “The Undercover Economist” – mostly in 2002, although the first edition emerged in the US in 2005 – I would never have dreamed that almost a decade later I would be able to publish a new edition. I have a great deal of good luck and about a million readers to thank for that, and I am counting my blessings.

Since I wrote the book, the world has changed and so have I. But has the new edition?

I have tried to preserve as much as possible of the original book rather than surrendering to hindsight bias, but I have tried to update as many of the statistics and examples as possible as seamlessly as I can. (Occasionally I have used footnotes to highlight changes between the first edition and the second – especially if the changes have either proved me right, or made me look silly.)

A more substantial change has been to replace chapter six – which was originally about the dot-com bubble – with a new chapter about the banking crisis that began in 2007. The dot-com bubble, alas, now seems fairly benign in comparison with the banking crisis, and it felt impossible to publish a second edition without trying to make sense of it all.

The second edition will be published in the UK in April. Little Brown are the publishers, and it should be available around the world except North America. I’m currently discussing a second edition for the US and Canada.

New series of More or Less

The new series of More or Less – or as the cognoscenti now insist on calling it, > ˅ < – begins today at half past one BST on Radio 4. It’s repeated on Sunday at 8pm, and as always you can subscribe to our podcast (click on the podcast icon at the top right of this page).

This week: the UK budget cuts have been described as “embarrassingly small” – can that be true? And if so what does that imply for public services? We’ll also investigate the cost of the war in Libya. We meet a mathematician who’s solved a puzzle concerning the Beatles hit, Strawberry Fields Forever. (You may want to listen to this on the radio: we may not be able to put as much music as we’d like into the podcast version for legal reasons.)

And we’ll present our alternative to the census, jointly with the Today program. Click here to fill it in. (It’s very short, we promise.)

I can also assure you that the program begins with an important breaking news story. Please tune in.

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