The great trailblazer
Economists everywhere should mourn the passing of Gary Becker
IF THERE is one person to blame for economists' habit of opining on everything, it is Gary Becker, who died on May 3rd. Not content with studying the world's economies, he was the first prominent economist to apply economic tools to all aspects of life. His revelation was the sort that seems obvious only in hindsight: that people are often purposeful and rational in their decisions, whether they are changing jobs, taking drugs or divorcing their spouses. This insight, and the work that followed from it, earned him a Nobel prize in 1992. No less an eminence than Milton Friedman declared in 2001 that Mr Becker was “the greatest social scientist who has lived and worked in the last half-century”.
At the heart of Mr Becker's work was the view that “individuals maximise welfare as they conceive it.” Welfare need not mean income; it could derive from the pleasure of altruism or the thrill of deviancy. But critically, this thesis implied that people respond to incentives—a realisation that opened the door to insights across the whole range of human activity.
Mr Becker first used this approach in his doctoral study of discrimination, a raw issue in 1950s America. At the time economists' models assumed that employers cared only about productivity, whatever the colour of the worker. Shunting this view aside, Mr Becker instead assumed that many individuals had a “taste for discrimination”, and perceived themselves to be worse off when forced to work alongside people of other races. He then explored how this preference affected labour markets.
In America, where the black population was roughly one-tenth of the total, discrimination against blacks led to relatively small reductions in white incomes but far more substantial ones for black workers. In South Africa, with a far higher proportion of blacks, discrimination brought much larger reductions in incomes across the economy. Mr Becker pointed out that although competition from more rational firms might gradually eliminate corporate discrimination, market forces alone would rarely erode discrimination rooted in the tastes of workers or consumers. His book on the subject, “The Economics of Discrimination”, became the foundation for subsequent research.
Mr Becker's restless mind then focused on crime. He became intrigued after weighing the odds and cost of getting a parking ticket, and deciding to risk it. He looked sceptically on the view, common at the time, that crime was simply deviant behaviour—a form of mental illness. At least some of it, he reckoned, sprang from a rational consideration of perceived costs and benefits. Moral norms might inhibit some individuals from breaking the law, but others would overcome their qualms when the return to criminal activity was high, or the likely punishment mild. Such calculations would apply, he argued, across a wide variety of crimes, from parking scofflaws to corporate fraudsters.
Mr Becker puzzled over why crime was economically costly. Part of the answer, he realised, was that it represents rent-seeking: fighting over the spoils of productive activity rather than creation of new wealth. Resources invested in commission of crimes might otherwise have gone towards growth-boosting activity. His work contributed to new crime-fighting methods. He reckoned there is an optimal amount of crime in society, since it makes little sense to pay huge sums to wipe out illegal activity carrying low social costs. Where enforcement is patchy, governments might still deter misbehaviour by increasing the severity of the punishment—by raising fines, say.
Mr Becker was again a pioneer, alongside his Columbia University colleague Jacob Mincer, in developing the concept of “human capital”, the investments individuals make in their own education. Mr Becker ventured that spending on education and training should be thought of as an economic choice, made in anticipation of perceived future gains, rather than a high-minded search for cultural enrichment. His view gave insight into labour-market oddities. By taking into account the difference between general knowledge and “firm-specific” skills, Mr Becker could explain why skilled workers are less likely to change firms, or why firms are more likely to promote from within. Human capital also shed light on gaps in pay across demographic groups—between men and women, for example. That, in turn, shaped Mr Becker's groundbreaking study on the economics of the family.
Mr Becker brought his characteristic analysis to the question, assuming that people are guided in family choices by a desire to improve their own welfare. That included marriage and divorce: his analysis implied, for instance, that those in wealthy families would divorce at lower rates, a prediction borne out by data. His work also helped explain falling fertility in rich countries. As wages rise, the opportunity cost of raising children increases, and large families become less attractive. What is more, as the link between education and economic success grows stronger, parents invest ever more in their children.
Mr Becker's trailblazing earned plenty of criticism. The interdisciplinary adventurism it embodied peeved other social scientists, who doubted that cool-headed analysis played much part in matters of love or larceny. But his work yielded unexpected insights and forced social scientists to rethink their assumptions and sharpen their analyses, the better to learn why people behave as they do and how policy can best help. Whole branches of microeconomics owe their existence to him. It is hard to imagine a more welfare-improving contribution.