I just finished reading Tim Harford’s book, “The Undercover Economist” and can heartily recommend it to anyone who has even the slightest interest in how all sorts of markets work from coffee shops, supermarkets, to sulfur and carbon emissions markets all the way through national economic policy surrounding globalization and free-trade. The subtitle reads “Exposing Why the Rich Are Rich, Why the Poor Are Poor–And Why You Can Never Buy a Decent Used Car!” As the Economist magazine quotes inside the front cover, it’s really “A playful guide to the economics of everyday life.”

The whole book is a witty and quick 250 page read. I would even go so far as to say that it is probably the best, most witty and readable articulation of fundamental economics principles that I have come across. And while I enjoyed Steven Levitt’s Freakonomics book, this one was much better at articulating and detailing fundamental principles. Now many folks might be put off by that description, but trust me, the whole work is an engaging read with stories and anecdotes that relate the principles in the process, quite unlike any boring textbook on the subjects.

Here is a short excerpt from one of my favorite sections to give you a flavor for the rest. (As an aside, I’ve always been a little perplexed by the “carbon neutral” proponents which have proliferated at several recent meetings I have attended, but Harford’s exposition is way more articulate than I could ever be.)

“How did you travel here today?”

“I’m sorry?”

I’m puzzled. Here I am, going to a panel discussion organized by an environmental charity, and a very eager young member of staff is grilling me before I even get past the door of the lecture hall.

“How did you travel here today? We need to know for our carbon offset program.”

“What’s a carbon offset program?”

“We want all of our meetings to be carbon neutral. We ask everyone who attends to let us know how far they came and on what mode of transportation, and then we work out how much carbon dioxide was emitted and plant trees to offset the emissions.”

The Undercover Economist is about to blow his cover.

“I see. In that case, I came here in an antrhacite powered steamer from Australia.”

“Sorry, how do you spell anthracite?”

“It’s just a kind of coal–very dirty, lots of sulfur. OW!”

The Undercover Economist’s wife gives him a sharp dig in the ribs.

“Ignore him. We both cycled here.”

“Oh.”

Apart from being a good example of how irritating an Undercover Economist can be, this true story should, I hope, provoke a few questions. Why would an environmental charity organize a carbon neutral meeting? The obvious answer is “so that it can engage in debate without contributing to climate change.” And that is true, but misleading.

The Undercover Economist in me was looking at things from the point of view of efficiency. If planting trees is a good way to deal with climate change, why not forget about the meetings and plant as many trees as possible? (In which case, everybody should say they came by steamship.) If awareness-raising debate is the important thing, why not forget about the trees and organize extra debates?

In other words, why be “carbon neutral” when you can be “carbon-optimal,” especially since the meeting was not benzene neutral, lead-neutral, particulate-neutral, ozone-neutral, sulfur-neutral, congestion-neutral, noise-neutral, or accident-neutral? Instead of working out whether to improve the environment directly (by planting trees) or indirectly (by promoting discussion), the charity was spending considerable energy keeping itself precisely “neutral”–and not even precisely neutral on all externalities, nor even a modest range of environmental toxins, but preserving its neutrality on a single high-profile pollutant: carbon dioxide. And it was doing so in a very public way.

A kind view would be that the charity was setting a “good example,” if acting nonsensically can ever be a good example. An unkind view would be that it was indulging in moral posturing.

There is plenty more of that sort of thing on a wide range of topics…

Even if you never had any interest in economics micro or macro, go buy the book right now. In fact, you can get it here on Amazon right this instant.

[Update: For the record, I am in favor of establishing a market for Carbon credits which can address emissions just as the Sulfur market addressed acid rain so efficiently. I just tend to question misplaced emphasis and what may very well be PR-motivated grandstanding that has little real impact in return for so much attention and focus.]