[Paleopsych] NYTBR: 'Freakonomics': Everything He Always Wanted to Know

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'Freakonomics': Everything He Always Wanted to Know
http://www.nytimes.com/2005/05/15/books/review/15HOLTL.html

[First chapter appended.]

    By JIM HOLT

    FREAKONOMICS
    A Rogue Economist Explores the Hidden Side of Everything.
    By Steven D. Levitt and Stephen J. Dubner.
    242 pp. William Morrow. $25.95.

    A FEW years ago, a young economist named Steven D. Levitt became
    briefly notorious for collaborating on a research paper that contained
    a strikingly novel thesis: abortion curbs crime. What Levitt and his
    co-author claimed, specifically, was that the sharp drop in the United
    States crime rate during the 1990's -- commonly attributed to factors
    like better policing, stiffer gun laws and an aging population -- was
    in fact largely due to the Roe v. Wade decision two decades earlier.
    The logic was simple: unwanted children are more likely to grow up to
    become criminals; legalized abortion leads to less unwantedness;
    therefore, abortion leads to less crime.

    This conclusion managed to offend nearly everyone. Conservatives were
    outraged that abortion was seemingly being promoted as a solution to
    crime. Liberals detected a whiff of racist eugenics. Besides, what
    business did this callow economist have trespassing on the territory
    of the criminologist? Economics is supposed to be about price
    elasticities and interest rates and diminishing marginal utilities,
    not abortion and crime. That is what makes it so useful to
    undergraduates seeking relief from insomnia.

    Levitt has strayed far from the customary paddock of the dismal
    science in search of interesting problems. How do parents of different
    races and classes choose names for their children? What sort of
    contestants on the TV show ''The Weakest Link'' are most likely to be
    discriminated against by their fellow contestants? If crack dealers
    make so much money, why do they live with their moms? Such everyday
    riddles are fair game for the economist, Levitt contends, because
    their solution involves understanding how people react to incentives.
    His peers seem to agree. In 2003, Levitt was awarded the John Bates
    Clark Medal, bestowed every two years on the most accomplished
    American economist under 40.

    ''Freakonomics,'' written with the help of the journalist Stephen J.
    Dubner, is an odd book. For one thing, it proudly boasts that it has
    no unifying theme. For another, each chapter begins with a quotation
    from the under-author (Dubner) telling us how great the over-author
    (Levitt) is: a ''master of the simple, clever solution,'' a ''noetic
    butterfly'' (!), ''genial, low-key and unflappable,'' etc. Yet a
    little self-indulgence can be tolerated in a book as instructive and
    entertaining as this one. (''Freakonomics'' grew out of [2]a profile
    Dubner wrote about Levitt in The New York Times Magazine, where I am
    also a contributor, but we've never met.)

    The trivia alone is worth the cover price. Did you know that Ku Klux
    Klan members affixed a ''kl'' to many words (thus two Klansmen would
    hold a ''klonversation'' in the local ''klavern'') or that the secret
    Klan handshake was ''a left-handed, limp-wristed fish wiggle''? In the
    mid-1940's, a Klan infiltrator began to feed such intelligence to
    writers for the radio show ''The Adventures of Superman,'' who
    incorporated it into the plotline, thereby making the Klan look
    ridiculous in the eyes of the public and driving down its membership.
    Levitt uses the rise and fall of the K.K.K. to illustrate the power of
    hoarded information. He finds a parallel in the world of real estate,
    where brokers employ code words in advertisements to let potential
    buyers know that an apartment can be bought for less than its listing
    price. ''Spacious'' and ''great neighborhood'' are associated with a
    low closing price, whereas ''state of the art'' and ''maple'' are
    associated with a high price.

    Sometimes Levitt seeks out his raw material, and sometimes -- as with
    a stack of spiral notebooks kept by a Chicago crack gang -- it falls
    into his lap. These notebooks, obtained by a graduate student, Sudhir
    Venkatesh, who spent a scary period all but living with the gang,
    contained sales figures, wages, dues, even death benefits paid to
    families of murdered members over a four-year period, at the peak of
    the crack boom. By analyzing them, Levitt and Venkatesh were able to
    work out the organization of the crack business, which turned out to
    be rather like that of McDonald's. The leader of the gang did fairly
    well, making around $100,000 a year (tax free). But the gang's ''foot
    soldiers,'' who sold the crack on the streets, cleared only $3.30 an
    hour -- less than the minimum wage. For this pittance they ran a
    one-in-four risk of being killed during the period in question, worse
    than the odds for a Texas death-row inmate. Why would anyone take such
    a job? Like other ''glamour professions,'' the crack trade is best
    viewed as a tournament, Levitt observes. You have to start out at the
    bottom to have a shot at the top job.

    Levitt is happiest grappling with questions that have the potential to
    overturn the ''conventional wisdom.'' ''Where did all the criminals
    go?'' proved to be the perfect instance of such a question. The sudden
    and precipitous crime drop in the 1990's took everyone by surprise.
    Plenty of plausible-sounding hypotheses were put forward to explain
    it. But when Levitt turned an economist's eye to the data, he found
    that most of the supposed causes -- innovative policing strategies,
    stricter gun control, a strong economy, the aging of the population --
    had a negligible effect. Others could be shown to play a limited role:
    increased imprisonment seemed to account for a third of the crime
    drop; the crash of the crack market for 15 percent; the hiring of more
    cops for another 10 percent.

    And the balance? Here is where Levitt and his collaborator, John
    Donohue of Stanford Law School, showed unsettling originality. Since
    abortion was legalized in 1973, around a million and a half women a
    year have ended unwanted pregnancies. Many of the women taking
    advantage of Roe v. Wade have been unmarried, poor and in their teens.
    Childhood poverty and a single-parent household are two of the
    strongest predictors of future criminality. As it happens, the crime
    rate started to drop in the early 1990's, just as children in the
    first post-Roe cohort were hitting their late teens, the criminal's
    prime. Hence Levitt and Donohue's audacious claim: the crime drop was,
    in economists' parlance, an ''unintended benefit'' of legalized
    abortion.

    A controlled experiment to test the truth of this theory is obviously
    out of the question. In ''Freakonomics,'' however, Levitt does the
    next best thing, teasing out subtle correlations that render the
    abortion-crime link more probable. (States like New York and
    California that legalized abortion before Roe v. Wade, for example,
    showed the earliest drops in crime.) In the social sciences, that is
    about as close as you can get to demonstrating causation. To insulate
    himself from the charge that he is advocating abortion as the cure for
    crime, Levitt does a little cost-benefit calculation. Suppose, for the
    sake of argument, we say a fetus is worth one one-hundredth of a
    person. Even then, he shows, the number of averted murders would not
    justify the number of abortions. This is clever but disingenuous.
    Anti-abortion groups do not hesitate to cite undesirable consequences
    of abortion. Why shouldn't abortion rights advocates get to cite its
    desirable consequences, like a drop in crime resulting from fewer
    unwanted children?

    Economists can seem a little arrogant at times. They have a set of
    techniques and habits of thought that they regard as more ''rigorous''
    than those of other social scientists. When they are successful -- one
    thinks of Amartya Sen's important work on the causes of famines, or
    Gary Becker's theory of marriage and rational behavior -- the result
    gets called economics. It might appear presumptuous of Steven Levitt
    to see himself as an all-purpose intellectual detective, fit to take
    on whatever puzzle of human behavior grabs his fancy. But on the
    evidence of ''Freakonomics,'' the presumption is earned.

    Jim Holt reviews books for The New Yorker and The New York Review of
    Books, among other publications.

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http://www.nytimes.com/2005/05/15/books/chapters/0515-1st-levitt.html?pagewanted=print

First chapter of 'Freakonomics'

    By STEVEN D. LEVITT and STEPHEN J. DUBNER

    Imagine for a moment that you are the manager of a day-care center.
    You have a clearly stated policy that children are supposed to be
    picked up by 4 p.m. But very often parents are late. The result: at
    day's end, you have some anxious children and at least one teacher who
    must wait around for the parents to arrive. What to do?

    A pair of economists who heard of this dilemma - it turned out to be a
    rather common one - offered a solution: fine the tardy parents. Why,
    after all, should the day-care center take care of these kids for
    free?

    The economists decided to test their solution by conducting a study of
    ten day-care centers in Haifa, Israel. The study lasted twenty weeks,
    but the fine was not introduced immediately. For the first four weeks,
    the economists simply kept track of the number of parents who came
    late; there were, on average, eight late pickups per week per day-care
    center. In the fifth week, the fine was enacted. It was announced that
    any parent arriving more than ten minutes late would pay $3 per child
    for each incident. The fee would be added to the parents' monthly
    bill, which was roughly $380.

    After the fine was enacted, the number of late pickups promptly went
    ... up. Before long there were twenty late pickups per week, more than
    double the original average. The incentive had plainly backfired.

    Economics is, at root, the study of incentives: how people get what
    they want, or need, especially when other people want or need the same
    thing. Economists love incentives. They love to dream them up and
    enact them, study them and tinker with them. The typical economist
    believes the world has not yet invented a problem that he cannot fix
    if given a free hand to design the proper incentive scheme. His
    solution may not always be pretty - it may involve coercion or
    exorbitant penalties or the violation of civil liberties - but the
    original problem, rest assured, will be fixed. An incentive is a
    bullet, a lever, a key: an often tiny object with astonishing power to
    change a situation.

    We all learn to respond to incentives, negative and positive, from the
    outset of life. If you toddle over to the hot stove and touch it, you
    burn a finger. But if you bring home straight A's from school, you get
    a new bike. If you are spotted picking your nose in class, you get
    ridiculed. But if you make the basketball team, you move up the social
    ladder. If you break curfew, you get grounded. But if you ace your
    SATs, you get to go to a good college. If you flunk out of law school,
    you have to go to work at your father's insurance company. But if you
    perform so well that a rival company comes calling, you become a vice
    president and no longer have to work for your father. If you become so
    excited about your new vice president job that you drive home at
    eighty mph, you get pulled over by the police and fined $100. But if
    you hit your sales projections and collect a year-end bonus, you not
    only aren't worried about the $100 ticket but can also afford to buy
    that Viking range you've always wanted - and on which your toddler can
    now burn her own finger.

    An incentive is simply a means of urging people to do more of a good
    thing and less of a bad thing. But most incentives don't come about
    organically. Someone - an economist or a politician or a parent - has
    to invent them. Your three-year-old eats all her vegetables for a
    week? She wins a trip to the toy store. A big steelmaker belches too
    much smoke into the air? The company is fined for each cubic foot of
    pollutants over the legal limit. Too many Americans aren't paying
    their share of income tax? It was the economist Milton Friedman who
    helped come up with a solution to this one: automatic tax withholding
    from employees' paychecks.

    There are three basic flavors of incentive: economic, social, and
    moral. Very often a single incentive scheme will include all three
    varieties. Think about the anti-smoking campaign of recent years. The
    addition of a $3-per-pack "sin tax" is a strong economic incentive
    against buying cigarettes. The banning of cigarettes in restaurants
    and bars is a powerful social incentive. And when the U.S. government
    asserts that terrorists raise money by selling black-market
    cigarettes, that acts as a rather jarring moral incentive.

    Some of the most compelling incentives yet invented have been put in
    place to deter crime. Considering this fact, it might be worthwhile to
    take a familiar question - why is there so much crime in modern
    society? - and stand it on its head: why isn't there a lot more crime?

    After all, every one of us regularly passes up opportunities to maim,
    steal, and defraud. The chance of going to jail - thereby losing your
    job, your house, and your freedom, all of which are essentially
    economic penalties - is certainly a strong incentive. But when it
    comes to crime, people also respond to moral incentives (they don't
    want to do something they consider wrong) and social incentives (they
    don't want to be seen by others as doing something wrong). For certain
    types of misbehavior, social incentives are terribly powerful. In an
    echo of Hester Prynne's scarlet letter, many American cities now fight
    prostitution with a "shaming" offensive, posting pictures of convicted
    johns (and prostitutes) on websites or on local-access television.
    Which is a more horrifying deterrent: a $500 fine for soliciting a
    prostitute or the thought of your friends and family ogling you on
    www.HookersAndJohns.com . . .