Books: Brilliant insights of the dismal science

The author finds rational explanations for behaviour patterns that perplex. Howard Davies likes his thinking - up to a point.

Last Updated: 31 Aug 2010

The Logic of Life: Uncovering the new economics of everything
Tim Harford
Little, Brown £12.99

Tim Harford, who writes the 'Dear Economist' column in the Financial Times, used to work for the World Bank. He refers to 'the earnest, bookish, charisma-free World Bank staff' (excluding himself, I presume).

He is clearly a dangerous colleague to have, and fellow FT journalists must now be rather cautious about what they say to him over the water cooler, lest they become categorised as part of that 99.9% of the world that, according to Harford, is made up of illogical, irrational non-economists.

When he launched his campaign to explain how economics, and particularly rational-choice theory, could illuminate many areas of personal and public life, there was undoubtedly a rich seam to be mined. As David Henderson, then of the OECD, explained 20 years ago in his excoriation of the standard of public debate on economic policy - Common-sense Economics - politicians and political commentators often hopelessly misuse economics and fail to understand the impact of economic incentives on behaviour. In his bestseller The Undercover Economist and in his FT column, Harford has highlighted cases where that is true.

Here he adds more. The earlier chapters deal largely with sex. So we learn why the rapid growth (so to speak) of oral sex among American teenagers in recent years has rational explanations (the girls are avoiding pregnancy and the health hazards of the Pill).

As does the incidence of unprotected sex among Mexican prostitutes. Taking account of the relatively low risk of HIV infection and the increased income from unprotected sex, the typical Mexican prostitute 'is acting as though she valued one extra year of healthy life between $15,000 and $50,000, or up to five years' income'. Given the relatively short working life of the average prostitute, this is not an unreasonable trade-off to make.

There is an illuminating analysis of the rise in the divorce rate in the US and the UK as women's earnings grew and their ability to manage independent lives rose. The opportunity cost of divorce fell. And Harford tiptoes through the arguments about racially focused housing neighbourhoods, trying to distinguish between prejudicial racism and what he rather riskily describes as 'rational racism'.

Harford is as uncomfortable as anyone with this term, but argues persuasively that unless we understand the economic motivations of those who seek out predominantly white neighbourhoods, we'll never reach any policy prescriptions that may offset them. He shows how game theory can explain the dynamics of population shifts, and gives clues on to how to respond.

So far, so good. And Harford tells these stories lightly, with wit. The problem with The Logic of Life is that its ambitions are rather larger than this. Harford is an excellent debunker of myths and misunderstandings, but when he comes to try to do some bunking of his own, he is less successful.

In his last chapter, 'A Million Years of Logic', he tries to give us a Grand Unified Theory of why economic growth took off at the time of the industrial revolution, why global cities have been created, and what mankind's prospects are for the future. In the process, he casually kicks into touch large areas of economic history and development economics, and replaces them with a kind of post-Malthusian theory based on the impact of population growth. The more people there are and the more intensively they compete with each other in local markets, the wealthier we'll all become, apparently.

Indeed, his conclusion is that 'the more of us there are in the world, living our logical lives, the better our chances of seeing out the next billion years'. This is at best a partial analysis and at worst a dangerously wrong-headed one.

You don't have to be a full-time tree-hugger to think that there may be environmental constraints on growth, or at least on the pace of growth. Even if you are confident that we may find inventive ways of offsetting the impact of climate change, it seems that global growth has outpaced innovation in this area for the past 100 years, with consequences that now seem certain to be damaging and that require costly corrections to our way of life.

But this analysis has no place in Harford's logic. In practice, therefore, rather than uncovering the new economics of everything, he has described the limitations of rational choice theory. Even though that was not exactly his intention, perhaps we should be grateful to him, nonetheless.

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