By Stephen D. Levitt and Stephen J. Dubner
Available at National Book Store
William Morrow Books, 232 pages
Economics, at its root, is the study of incentives," notes Stephen J. Dubner in the oddball bestseller Freakonomics. "How people get what they want, or need, especially when other people want or need the same thing."
Let’s take a local example. Say you’ve got a city – like Makati – where the traffic cops are empowered to stop you and confiscate your driver’s license for committing various obscure crimes while in motion. What fuels their current zeal to nab so many errant drivers (even those who fall innocent victim to hard-to-read or well-hidden traffic signs)? Why, it must have something to do with the percentage (reportedly 20 percent of the ticket fee) that they earn with each confiscated license.
This is called an "incentive."
But wait. What if the amount of 20 percent is less than what they stand to gain by convincing you – the driver – not to relinquish your license, but to pay them a direct fee instead, something more than 20 percent? That would be an even higher incentive. And if you, a busy commuter, have no time to travel to an obscure government office to pay the legitimate fee, you may feel an incentive to pay the cop off and be on your way.
In Freakonomics, Dubner presents the strange and controversial insights of economist Stephen D. Levitt, who studies situations like how graft and corruption flourish, why youth crime in the US dropped dramatically in the early 1990s, and whether what we name our babies can predict how they’ll perform in life.
Levitt, who teaches economics at Chicago University, likes to think outside the box. In fact, he likes to think outside the post office entirely. Perhaps his most controversial chapter deals with the drop in violent crime in the US. Critics, law enforcement officials, politicians and socio-economic experts had all been predicting an explosion of murders and shootings by teenagers in the ’90s. It didn’t happen. In fact, teen shootings, drug use and other illicit activities dropped, and Levitt wanted to know why. Using statistical analysis, he rules out other factors (more police, tougher gun laws, the aging of the population) and looks to another possible cause: the US law legalizing abortion ("Roe vs. Wade") that went into effect in 1973.
Taking note of studies showing that unwanted children or those from broken families tend to grow up to be criminals, he concludes that it was the sharp increase in abortions after "Roe vs. Wade" that accounts for the sharp drop in crime: in other words, a whole generation of potential criminals was not allowed to be born.
This is the kind of thinking that gets Levitt in trouble. His argument offends liberals, who bristle at the notion that poor, unwanted kids are inherently destined to be criminals; and it offends conservatives, who fear that such an argument would encourage abortions.
Actually, Levitt would argue, he’s just presenting one way of looking at reality. How politicians use such information is their own business.
In another chapter, Levitt notes that locating incentives can help track down all kinds of corruption. In the case of the US "No child left behind" program, high school teachers in many states were given bonuses for increasing the passing rate of their students. Economists were quickly able to spot the incentive: teachers wanted those bonuses, so they were correcting the kids’ answers on state tests.
The same is true, Levitt notes, in Japan where sumo wrestling is more than just a national sport. The idea that these huge beefy wrestlers actually throw matches to help one another advance to higher-paying wrestling levels is just too controversial for Japanese society to accept. But Levitt shows it’s statistically likely that the wrestlers take turns laying off on certain matches. The incentives for high-paid sumo warriors are just too high to ignore.
Freakonomics jumps around randomly, and it lives up to its promise of having no connecting theme. Some of Levitt’s studies focus on real estate agents, and how hard they work (or don’t work) to sell your home. Through statistics, he shows that real estate agents hold their own homes on the market for an average three days longer than their clients; this is because they know they stand to gain between $10,000 and $20,000 more by waiting for the best offer. But for your home? They stand to gain only a five-percent commission — $200 to $300 more — by patiently waiting. So they usually sell quickly and move on to the next client.
This book is fascinating, though hardly what you’d call ironclad science. Levitt himself draws a distinction between "correlation" and "causality," and – in the case of the abortion argument, for example – often seems to point to correlations rather than true causes to explain certain trends.
But it’s certainly fun reading. You’ll be amazed to learn, for instance, that parenting actually has little effect on your child’s future. According to Levitt and Dubner (who is on hand, presumably, to dumb down Levitt’s arguments for lay readers), genetics is a far more reliable indicator of how kids will perform as adults than their immediate environment. So "all those marathon readings of Goodnight Moon" may not guarantee a child who loves to read; but having a lot books in the home definitely improves the odds that he or she will become an avid reader.
In another lighthearted chapter, Levitt looks at the trend of baby names. Books and websites and media articles show that parents place a high premium on unusual or "sophisticated" sounding names. But is a child’s name his or her destiny?
He looks at the case of Roger Lane, a Harlem, New York man who named his first baby son Winner back in 1958. For reasons known only to himself, Lane named his second son Loser. Guess which one became a success?
Loser Lane did in fact succeed. He went to prep school on a scholarship, graduated from Lafayette College in Pennsylvania, and joined the New York City Police Department, later becoming a detective and, eventually, lieutenant." No one calls him "Loser" at work, of course; he’s known as "Jimmy" or "James." And Winner Lane? Sadly, he’s since had nearly three dozen arrests for burglary, domestic violence, trespassing, resisting arrest and other mayhem.
In Levitt’s Freakonomic world, this is just the kind of irony that needs to be explained by economics. And a Loser by any other name, it seems, may not always smell as sweet.