Freakonomics - A Rogue Economist Explores The Hidden Side Of Everything | Chapter 15 of 33 - Part: 1 of 4

Author: Steven D. Levitt | Submitted by: Maria Garcia | 737713 Views | Add a Review

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THE PROBABILITY THAT A REAL-ESTATE AGENT IS CHEATING YOU (AND OTHER RIDDLES OF MODERN LIFE)

Inside the curious mind of the heralded young economist Steven Levitt

by Stephen J. Dubner
New York Times Magazine, August 3, 2003

The most brilliant young economist in America—the one so deemed, at least, by a jury of his elders—brakes to a stop at a traffic light on Chicago’s south side. It is a sunny day in mid-June. He drives an aging green Chevy Cavalier with a dusty dashboard and a window that doesn’t quite shut, producing a dull roar at highway speeds. But the car is quiet for now, as are the noontime streets: gas stations, boundless concrete, brick buildings with plywood windows.

An elderly homeless man approaches. It says he is homeless right on his sign, which also asks for money. He wears a torn jacket, too heavy for the warm day, and a grimy red baseball cap.

The economist doesn’t lock his doors or inch the car forward. Nor does he go scrounging for spare change. He just watches, as if through one-way glass. After a while, the homeless man moves along.

“He had nice headphones,” says the economist, still watching in the rearview mirror. “Well, nicer than the ones I have. Otherwise, it doesn’t look like he has many assets.”

 

Steven Levitt tends to see things differently than the average person. Differently, too, than the average economist. This is either a wonderful trait or a troubling one, depending on how you feel about economists. The average economist is known to wax oracularly about any and all monetary issues. But if you were to ask Levitt his opinion of some standard economic matter, he would probably swipe the hair from his eyes and plead ignorance. “I gave up a long time ago pretending that I knew stuff I didn’t know,” he says. “I mean, I just—I just don’t know very much about the field of economics. I’m not good at math, I don’t know a lot of econometrics, and I also don’t know how to do theory. If you ask me about whether the stock market’s going to go up or down, if you ask me whether the economy’s going to grow or shrink, if you ask me whether deflation’s good or bad, if you ask me about taxes—I mean, it would be total fakery if I said I knew anything about any of those things.”

In Levitt’s view, economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions. His particular gift is the ability to ask such questions. For instance: If drug dealers make so much money, why do they still live with their mothers? Which is more dangerous, a gun or a swimming pool? What really caused crime rates to plunge during the past decade? Do real-estate agents have their clients’ best interests at heart? Why do black parents give their children names that may hurt their career prospects? Do schoolteachers cheat to meet high-stakes testing standards? Is sumo wrestling corrupt?

And how does a homeless man afford $50 headphones?

Many people—including a fair number of his peers—might not recognize Levitt’s work as economics at all. But he has merely distilled the so-called dismal science down to its most primal aim: explaining how people get what they want, or need. Unlike most academics, he is unafraid of using personal observations and curiosities (though he does fear calculus). He is an intuitionist. He sifts through a pile of data to find a story that no one else had found. He devises a way to measure an effect that veteran economists had declared unmeasurable. His abiding interests—though he says he has never trafficked in them himself—are cheating, corruption and crime.

His interest in the homeless man’s headphones, meanwhile, didn’t last long. “Maybe,” he said later, “it was just testimony to the fact I’m too disorganized to buy a set of headphones that I myself covet.”

Levitt is the first to say that some of his topics border on the trivial. But he has proved to be such an ingenious researcher and clear-eyed thinker that instead of being consigned to the fringe of his field, the opposite has happened: he has shown other economists just how well their tools can make sense of the real world.

“Levitt is considered a demigod, one of the most creative people in economics and maybe in all social science,” says Colin Camerer, an economist at the California Institute of Technology. “He represents something that everyone thinks they will be when they go to grad school in econ, but usually they have the creative spark bored out of them by endless math—namely, a kind of intellectual detective trying to figure stuff out.”

Levitt is a populist in a field that is undergoing a bout of popularization. Undergraduates are swarming the economics departments of elite universities. Economics is seen as the ideal blend of intellectual prestige (it does offer a Nobel, after all) and practical training for a high-flying finance career (unless, like Levitt, you choose to stay in academia). At the same time, economics is ever more visible in the real world, thanks to the continuing fetishization of the stock market and the continuing fixation with Alan Greenspan.

The greatest change, however, is within the scholarly ranks. Microeconomists are gaining on the macro crowd, empiricists gaining on the theorists. Behavioral economists have called into doubt the very notion of “homo economicus,” the supposedly rational decision-maker in each of us. Young economists of every stripe are more inclined to work on real-world subjects and dip into bordering disciplines—psychology, criminology, sociology, even neurology—with the intent of rescuing their science from its slavish dependence upon mathematical models.

Levitt fits everywhere and nowhere. He is a noetic butterfly that no one has pinned down—he was once offered a job on the Clinton economic team, and the Bush campaign approached him about being a crime adviser—but who is widely appreciated.

“Steve isn’t really a behavioral economist, but they’d be happy to have him,” says Austan Goolsbee, who teaches economics at the University of Chicago’s Graduate School of Business. “He’s not really an old price-theory guy, but these Chicago guys are happy to claim him. He’s not really a Cambridge guy”—although Levitt went to Harvard and then M.I.T.—“but they’d love him to come back.”

He has critics, to be sure. Daniel Hamermesh, a prominent labor economist at the University of Texas, has taught Levitt’s paper “The Impact of Legalized Abortion on Crime” to his undergraduates. “I’ve gone over this paper in draft, in its printed version, at great length, and for the life of me I can’t see anything wrong with it,” Hamermesh says. “On the other hand, I don’t believe a word of it. And his stuff on sumo wrestlers—well, this is not exactly fundamental, unless you’re Japanese and weigh 500 pounds.”

But at thirty-six, Levitt is a full professor in the University of Chicago’s economics department, the most legendary program in the country. (He received tenure after only two years.) He is an editor of the Journal of Political Economy, a leading journal in the field. And the American Economic Association recently awarded him its John Bates Clark Medal, given biennially to the country’s best economist under 40.

 

He is a prolific and diverse writer. But his paper linking a rise in abortion to a drop in crime has made more noise than the rest combined. Levitt and his co-author, John Donohue of Stanford Law School, argued that as much as 50 percent of the huge drop in crime since the early 1990s can be traced to Roe v. Wade. Their thinking goes like this: the women most likely to seek an abortion—poor, single, black or teenage mothers—were the very women whose children, if born, have been shown most likely to become criminals. But since those children weren’t born, crime began to decrease during the years they would have entered their criminal prime. In conversation, Levitt reduces the theory to a tidy syllogism: “Unwantedness leads to high crime; abortion leads to less unwantedness; abortion leads to less crime.”

Levitt had already published widely about crime and punishment. One paper he wrote as a graduate student is still regularly cited. His question was disarmingly simple: Do more police translate into less crime? The answer would seem obvious—yes—but had never been proved: since the number of police officers tends to rise along with the number of crimes, the effectiveness of the police was tricky to measure.

Levitt needed a mechanism that would unlink the crime rate from police hiring. He found it within politics. He noticed that mayors and governors running for re-election often hire more police officers. By measuring those police increases against crime rates, he was able to determine that additional officers do indeed bring down violent crime.

That paper was later disputed—another graduate student found a serious mathematical mistake in it—but Levitt’s ingenuity was obvious. He began to be acknowledged as a master of the simple, clever solution. He was the guy who, in the slapstick scene, sees all the engineers futzing with a broken machine—and then realizes that no one has thought to plug it in.

Arguing that the police help deter crime didn’t make Levitt any enemies. Arguing that abortion deterred crime was another matter.

In the abortion paper, published in 2001, he and Donohue warned that their findings should not be seen “as either an endorsement of abortion or a call for intervention by the state in the fertility decisions of women.” They suggested that crime might just as easily be curbed by “providing better environments for those children at greatest risk for future crime.”

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Alice
Great book, nicely written and thank you BooksVooks for uploading

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