The Legacy Of Gary Becker

Justin Wolfers eulogizes the University of Chicago economist-cum-sociologist, who passed away last weekend at the age of 83:

To Gary, who died on Saturday, economics was not a field of inquiry, but rather a method of analysis. He saw the power of the economic method to illuminate issues well beyond the pecuniary domain. Along the way, he transformed our understanding of discrimination, education, labor markets, crime, the family, social interactions and the law.

Before Professor Becker, these topics were considered noneconomic. Today, they’re central. Whether they are aware of it or not, whenever policy makers debate these issues today, they do so in the shadow of an analytic framework that he developed. Grandiose as it may sound, no economist since Marx has had such a profound impact across the social sciences, transforming not just economics, but also sociology, political science, criminology, demography and legal scholarship.

The heart of the Beckerian approach is that people make decisions with purpose. His approach grants agency to everyone from the love-struck teen to the potential addict who is trying to decide whether to shoot up for the first time. In his telling, they’re considering the likely consequences of their actions, and so they’re responsive to incentives.

Yglesias lists Becker’s major contributions to his field:

Becker pioneered the concept of “human capital” — the idea that individuals could and did act to deliberately increase the value of their labor by investing time and effort in gaining more skills. This was, at the time, a new way of bringing the traditional process of education into the framework of economic life. In the human capital view, people pursue schooling not merely for love of learning but because effort expended in learning is rewarded in the labor market.

Becker, like several of his colleagues at the University of Chicago economics department, was also an active popularizer of pro-market political ideas, including both standard right-of-center economic policies and more exotic ideas like auctioning permits to immigrate to the United States. But much of his influence can be seen in work that has little direct relationship to politics.

He also brought economics to bear on the issue of racism, Edward Glaeser notes:

Economists didn’t study discrimination in the 1950s, unless it was the price discrimination practiced by railroads. Gunnar Myrdal’s 1944 An American Dilemma: The Negro Problem and Modern Democracy may have later won the author the Nobel Prize in Economics, but he was seen by Americans as more of a sociologist than an economist, and he was a Swedish Social Democrat to boot. Becker emerged from a citadel of American economics, using the increasingly mathematical tools that would come to define economics.

The Economics of Discrimination noted that firms led by racist leaders should earn less money than firms that just try to maximize profits. This insight countered those who saw an intrinsic link between capitalism and racism, but Becker’s logic is inescapable: Maximization subject to a constraint (racism) does less well than unconstrained maximization. The same logic also implies that racist workers will earn less money, and racist homebuyers will pay more for housing. It does not imply that whites cannot benefit, however, if they collectively rig the system against African-Americans. Becker’s subversive message was that, in the right circumstances, the quest for profits can be a force for tolerance.

Cass Sunstein remembers Becker for his belatedly appreciated insights into odd subjects like restaurant pricing:

Behavioral economists like to emphasize fairness. People tend to think that it’s unfair to raise prices, and maybe popular restaurants don’t want to make their customers angry. But Becker didn’t have a lot of enthusiasm for behavioral economics, so he went in a different direction.

His key point was that people’s demand for some goods depends on the demand from other people. For some goods, the pleasure is greater when many people want to consume it – “perhaps because a person does not wish to be out of step with what is popular, or because confidence in the quality of the food, writing, or performance is greater when a restaurant, book, or theater is more popular.”

Becker’s argument helps to explain why some books, movies, restaurants, magazines, political campaigns, technologies and ideas turn out to be spectacularly successful, while very similar ones fail. If at some point people begin to think that your product is popular, you can get a huge boost.

Kathleen Geier, who respected Becker even as she disagreed with him profoundly, reviews the criticism of his ideas from the left, particularly on the notion of “human capital”:

Human capital was a conveniently optimistic theory that told us that our economic success was merit-based and within our control. It detracted attention from the growing power of the other kind of capital, and the attendant spiraling economic inequality it was creating.

Yet underneath its sunny facade, human capital theory has a dark side. As Philip Mirowski notes, Foucault pointed out that Becker’s concept of “human capital” brilliantly flipped our self-identification as economic actors from laborers to capitalists, “investing” in ourselves like we’re a piece of run-down property that needs some sprucing up. That’s a profoundly creepy and alienating self-concept. And it’s certainly of a piece with Becker’s hard-right politics.

Lastly, John Cassidy points out that Becker correctly doubted that the financial crisis would fundamentally alter the field of economics:

When Becker, Milton Friedman, and other members of the Chicago School reminded other economists that price systems convey valuable information, and that incentives matter, they were imparting important truths. But they took the laissez-faire arguments too far, and many of their followers went even further, denying the very possibility of market failure and pillorying virtually any form of government intervention as counterproductive.

That was ideology rather than sound economics. Compared to ten or fifteen years ago, some progress has been made. Even at economics conferences, you can’t get very far these days by saying that markets, particularly financial markets, are invariably “efficient,” and that we can’t hope to improve on their results. The passage of the Affordable Care Act was an acknowledgement that the health-care market wasn’t working in the interests of the uninsured. The current debate about inequality reflects a widespread belief that compensation and rewards aren’t wholly correlated with productivity, which is what orthodox economics would tell us; it also underscores the lopsided distribution of power and access.

These are encouraging signs. But, over all, Becker was right: the revolution in economics didn’t happen. Or, at least, it hasn’t happened yet.