Becker, Gary – artdiamondblog.com

Rationality-Defender Stigler Saw Voting as Irrational, but Did It Anyway

Nobel Prize winner George Stigler contributed to the Public Choice literature and was a staunch defender of rationality. One example would be his paper with Gary Becker, “De Gustibus Non Est Disputandum.” One popular, much discussed conclusion of some public choice theorists is that it is irrational to vote. The argument goes that the marginal effect of one vote is almost always miniscule, so the expected benefit to the voter is equally miniscule. On the other hand, the time and effort it takes to vote are always more than miniscule. So the expected costs of voting exceed the expected benefits. Ergo it is irrational to vote. When I was a graduate student, taking courses in philosophy and economics, and for a couple of years as a post-doctoral fellow, I frequently stopped by the office of the Journal of Political Economy where Stigler was an editor. I believe it was there that I heard Stigler, definitely on an election day, say “Here I go to do something irrational.”

Stigler is well-known for his humorous biting comments. These could be tough on others. But this story shows that they also could be directed at himself.

I do not know if anyone has fully solved the paradox of the irrationality of voting. I guess you would have to say something about how the effects of all good people ceasing to vote would be far from marginal and far from good.

I once mentioned to distinguished Public Choice theorist Dwight Lee that a positive result of the personal benefits of voting being miniscule to a voter, is that the voter was freed from voting their personal narrow self-interest, and could vote their conscience about what served the general good. (Maybe something like what Rawls hoped for behind his “veil of ignorance” in A Theory of Justice.) I believe that Dwight told me that he already published a paper that expressed this positive result, but I never took the time to look for that paper.

Successes of Thiel’s Entrepreneurial Anti-College Fellowships Undermine Veneration of Higher Ed

Gary Becker won the Nobel Prize in part for his work as a founder of the study of the economics of human capital. One common finding of the field is that investment in higher education has a high rate of return. So Becker was puzzled when his own grandson pondered skipping college in order to directly become a technology entrepreneur.

I speculate that information technology will make it increasingly easy for autodidacts to learn on their own what they need to know, whenever they need to know it. I further speculate that formal education, especially formal higher education, will wither into irrelevance, just as the Post Office has withered in the face of email and Amazon.

(p. B4) Peter Thiel is trying harder than ever to get young people to skip college.

Since 2010, Thiel, an early Facebook investor and a founder of PayPal Holdings, has offered to pay students $100,000 to drop out of school to start companies or nonprofits.

. . .

Some big successes include Vitalik Buterin, co-founder of Ethereum, the blockchain network; Laura Deming, a key figure in venture investing in aging and longevity; Austin Russell, who runs self-driving technologies company Luminar Technologies; and Paul Gu, co-founder of consumer lending company Upstart.

When he began his fellowship, Thiel, a vocal libertarian who was an active supporter of Donald Trump in 2016, was disenchanted with leading colleges and convinced they weren’t best suited for many young people.

His aim, at least in part, was to undermine the popular view that college was necessary for all students, and that top universities should be accorded prestige and veneration.

Since then, public opinion has shifted toward his perspective. More Americans are rethinking the value of a college education. At the same time, America’s elite universities have come under fire for their handling of a surge in antisemitism and for maintaining what critics call a double standard regarding free speech.

For the full story see:

Gregory Zuckerman. “Thiel’s Offer to Skip College Draws Many.” The Wall Street Journal (Monday, Feb. 26, 2024): B4.

(Note: ellipsis added.)

(Note: the online version of the story has the date February 24, 2024, and has the title “Peter Thiel’s $100,000 Offer to Skip College Is More Popular Than Ever.”)

Becker is best known for:

Becker, Gary S. Human Capital: A Theoretical and Empirical Analysis; with Special Reference to Education. 3rd ed. New York: Columbia University Press, 1993.

Gary Becker Foresaw a Cure for Obesity that Daniel Kahneman Wrote Was “Implausible”

I have found much of value in Daniel Kahneman’s Thinking, Fast and Slow. But the following passage is not included in what I value.

A famous example of the Chicago approach is titled A Theory of Rational Addiction; it explains how a rational agent with a strong preference for intense and immediate gratification may make the rational decision to accept future addiction as a consequence. I once heard Gary Becker, one of the authors of that article, who is also a Nobel laureate of the Chicago school, argue in a lighter vein, but not entirely as a joke, that we should consider the possibility of explaining the so-called obesity epidemic by people’s belief that a cure for diabetes will soon become available. He was making a valuable point: when we observe people acting in ways that seem odd, we should first examine the possibility that they have a good reason to do what they do. Psychological interpretations should only be invoked when the reasons become implausible—which Becker’s explanation of obesity probably is.

Source: Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011, p. 412.

Gary Becker is vindicated again:

(p. A16) An experimental drug has enabled people with obesity or who are overweight to lose about 22.5 percent of their body weight, about 52 pounds on average, in a large trial, the drug’s maker announced on Thursday.

The company, Eli Lilly, has not yet submitted the data for publication in a peer-reviewed medical journal or presented them in a public setting. But the claims nonetheless amazed medical experts.

“Wow (and a double Wow!)” Dr. Sekar Kathiresan, chief executive of Verve Therapeutics, a company focusing on heart disease drugs, wrote in a tweet. Drugs like Eli Lilly’s, he added, are “truly going to revolutionize the treatment of obesity!!!”

Dr. Kathiresan has no ties to Eli Lilly or to the drug.

. . .

The Eli Lilly study lasted 72 weeks and involved 2,539 participants. Many qualified as obese, while others were overweight but also had such risk factors as high blood pressure, high cholesterol levels, cardiovascular disease or obstructive sleep apnea.

They were divided into four groups. All received diet counseling to reduce their calorie intake by about 500 a day.

One group was randomly assigned to take a placebo, while the other three received doses of tirzepatide ranging from 5 milligrams to 15 milligrams. Patients injected themselves with the drug once a week.

. . .

The medications are among a new class of drugs called incretins, which are naturally occurring hormones that slow stomach emptying, regulate insulin and decrease appetite. The side effects include nausea, vomiting and diarrhea. But most patients tolerate or are not bothered by these effects.

For the full story, see:

Gina Kolata. “Experimental Obesity Drug Produces 20% Weight Loss.” The New York Times (Friday, April 29, 2022): A16.

(Note: ellipses added.)

(Note: the online version of the story was updated May 1, 2022, and has the title “Patients Taking Experimental Obesity Drug Lost More Than 50 Pounds, Maker Claims.” Where there is a slight difference in wording between the online and the print versions, the passages quoted above follow the online version.)

Kahneman’s book is:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Firms That Discriminate Earn Lower Profits

(p. B1) Economists at the University of California, Berkeley, and the University of Chicago this week unveiled a vast discrimination audit of some of the largest U.S. companies. Starting in late 2019, they sent 83,000 fake job applications for entry-level positions at 108 companies — most of them in the top 100 of the Fortune 500 list, and (p. B6) some of their subsidiaries.

. . .

(p. B6) In the study, applicants’ characteristics — like age, sexual orientation, or work and school experience — varied at random. Names, however, were chosen purposefully to ensure applications came in pairs: one with a more distinctive white name — Jake or Molly, say — and the other with a similar background but a more distinctive Black name, like DeShawn or Imani.

. . . : On average, applications from candidates with a “Black name” get fewer callbacks than similar applications bearing a “white name.”

. . .

All told, for every 1,000 applications received, the researchers found, white candidates got about 250 responses, compared with about 230 for Black candidates. But among one-fifth of companies, the average gap grew to 50 callbacks. Even allowing that some patterns of discrimination could be random, rather than the result of racism, they concluded that 23 companies from their selection were “very likely to be engaged in systemic discrimination against Black applicants.”

. . .

“Discriminatory behavior is clustered in particular firms,” the researchers wrote. “The identity of many of these firms can be deduced with high confidence.”

The researchers also identified some overall patterns. For starters, discriminating companies tend to be less profitable, a finding consistent with the proposition by Gary Becker, who first studied discrimination in the workplace in the 1950s, that it is costly for firms to discriminate against productive workers.

For the full story, see:

Eduardo Porter. “Study Shows Which Firms Discriminate.” The New York Times (Friday, July 30, 2021): B1 & B6.

(Note: ellipses added.)

(Note: the online version of the story has the date July 29, 2021, and has the title “Who Discriminates in Hiring? A New Study Can Tell.”)

The economic study summarized in the passages quoted above is:

Kline, Patrick M., Evan K Rose, and Christopher R Walters. “Systemic Discrimination among Large U.S. Employers.” National Bureau of Economic Research Working Paper #29053, Aug. 2021.

Baiju May Violate the Law of Diminishing Marginal Utility

I remember Gary Becker suggesting that there may be rare exceptions to the Law of Diminishing Marginal Utility. Maybe baiju, discussed below, is one of those rare exceptions?

(p. A13) Newcomers to China are usually horrified by their first encounter with baijiu, the fiery spirit consumed at banquets and family dinners, typically comparing it to jet fuel, paint stripper or drain cleaner. Even long-term expatriates often shudder at the stuff. So can foreigners learn to love baijiu? Derek Sandhaus proves it is possible. But it takes some work, as he describes in “Drunk in China.”

A Mandarin-speaker and the trailing spouse of an American diplomat to China, Mr. Sandhaus sniffs his first glass of baijiu and compares it to “the last whiff one senses before waking up in a serial killer’s rumpus room.” So when a friend tells him it takes 300 shots to learn to love the liquor, he accepts the challenge and starts a blog about his odyssey. The promised epiphany comes after 70 shots when Mr. Sandhaus cracks open a bottle of National Cellar 1573, made by Sichuan’s Luzhou Laojiao distillery. “This was not simply a magnificent baijiu,” he writes. “It was a magnificent drink. Period.”

. . .

China’s distillers need to find new markets for baijiu, and Mr. Sandhaus has embraced this mission with the zeal of a convert. He co-founded Ming River Sichuan Baijiu to sell a baijiu produced by Luzhou Laojiao, the same distillery that produces the 1573 hooch he first fell in love with. He believes that cosmopolitans will embrace authentic Chinese baijiu if it is presented in a familiar form. To that end, he promotes the creation of baijiu cocktails. It’s a gutsy bet, especially by one who initially thought baijiu “smelled as if someone had wrung a garbage bag of soiled gym shorts into a bucket of fish sauce, stirred in an equal measure of Drano, rotten fruit, and blue cheese, and left it to marinate a few days.”

For the full review, see:

Hugo Restall. “BOOKSHELF; The Proletariat’s White Wine.” The Wall Street Journal (Friday, January 17, 2020): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date Jan. 16, 2020, and has the title “BOOKSHELF; ‘Drunk in China’ Review: The Proletariat’s White Wine.”)

The book under review, is:

Sandhaus, Derek. Drunk in China: Baijiu and the World’s Oldest Drinking Culture. Lincoln, NE: Potomac Books, 2020.

Aloysius Siow’s Obituary for Gary Becker

My friend Aloysius Siow and I were graduate students at the University of Chicago in the mid to late 1970s, where we took courses from Gary Becker, and attended his workshop. In the past, I have posted several entries on Becker on this blog that appear under the Category “Becker, Gary.” I expect to write some thoughts on his passing, but am not ready to do so yet. Aloysius drafted an obituary without delay, and kindly said it was OK for me to post it as an entry on this blog.

Obituary: Gary Becker
The Father of Economics Imperialism

By Aloysius Siow, Professor of Economics
University of Toronto
May 4, 2014

Gary Becker, an American economist, died on May 3 at the age of 83.
His major contribution was the systematic application of economics to the analysis of social issues. Before his work, economists primarily studied how markets and market economies worked. He used economics to study discrimination, criminal behavior, human capital, marriage, fertility and other social issues.
He won the Nobel Prize in economics in 1992. He also won the John Bates Clark medal, awarded to the best American economist under 40, in 1967; and the Presidential Medal of Freedom, the highest honor award by the US president to a civilian, in 2007.
Becker’s father, Louis William Becker, migrated from Montreal to the United States at age sixteen and moved several times before settling down in Pottsville, Pennsylvania. Becker’s mother was Anna Siskind. He was born in Pottsville in 1930. At age five, Gary and his family moved to Brooklyn. He studied in Princeton University as an undergraduate. He did his PhD at the University of Chicago where he met Milton Friedman who would have an enormous influence on his intellectual development. After he obtained his PhD, Becker spent a few years as an assistant professor at the University of Chicago and then moved to Columbia University.
His path breaking 1955 dissertation was on the economics of discrimination. It was the first systematic study of a non-traditional economic topic using economics. In it, he argued that the difference in wages between a majority and a minority group can be used to measure the extent of discrimination in the labor market. When one points out today that it is unfair that women earn 80 percent of what men make, they are channeling Becker. His thesis analyzed how the South African system of apartheid benefited Whites at the expense of Blacks in South Africa. This analysis predated the Anti-apartheid Boycott Movement of the West which started in 1959.
The methodology and concern of his thesis previewed his research career. At the time of the publication of his thesis in 1957, economics was a conservative discipline, restricting itself to the study of the behavior of markets and market economies. Becker set for himself the task of systematically applying the tools of economics to the study of social issues. At the beginning, his work was generally ignored if not actually denigrated within the profession. Economists were supposed to study more important concerns.
After studying discrimination, he provided a modern economic theory of criminal behavior. Together with his study on discrimination, this work inspired the development of the law and economics movement.
At Columbia University, he began a systematic study of human capital, the study of the allocation of time and other topics in labor economics. Together with his colleague Jacob Mincer, they wrote many of the important papers in labor economics and also produced many successful graduate students. For example, their graduate student, Michael Grossman, wrote his thesis on health economics where he applied economics to the study of individual maintenance of health. Today, health economics is a major field of study and a central pillar of health policy. Due to the topics they worked on, they also attracted and successfully supervised many female PhD students. Claudia Goldin of Harvard University is perhaps his most illustrious female PhD student.
In 1970, Becker returned to the University of Chicago where he remained as a professor until his death. He continue to apply his economics to the study of the family, including the behavior of marriage markets, allocation of resources within the family and fertility behavior. The discussion of how economics can affect fertility anticipated government policies which seek to increase their native fertility rates. For example, Singapore has over 30 programs which seeks to increase her fertility rate.
Today, Becker’s approach is known as the rational choice approach in the social sciences. As the economics profession grew to appreciate his contributions, other social sciences have mixed feelings about his influence. On the one hand, they appreciate how he led economists to study different social issues. On the other hand, other social scientists often feel threatened by the invasion of economists.
Economists systematically use mathematical methods, statistical analysis and often large data sets. They prioritize cost benefit calculus over other factors which may also affect individual behavior. They had little patience with qualitative studies. Thus some social scientists felt that their contributions were unfairly ignored and so resisted the application of economics to their fields. For example, the Critical Legal Studies movement was developed in the 1970s in part in reaction to the success of the law and economics movement in law schools. In political science, rational choice theory is now a core field of study. Yet there are many political scientists who reject this approach.
Interestingly, motivated by the work of psychologists, economists have also begun to reject the purely rational calculus model of Becker as too narrow. Rather, these behavioral economics researchers argue that individuals have bounded rationality and are subject to systematic biases in their behavior. For example, Robert Shiller, a Nobel economist, has argued that bubbles occur in asset markets due to psychological biases. Thus the success of Becker has led to qualifications which is a hallmark of progress in science.
Contrary to many successful economists, Becker did not spend much time consulting for either the government or business. He was a conservative but unlike his mentor Milton Friedman, his direct influence on policy was minimal. Rather, the various economic fields which he instigated have had and continue to have significant influence on public policy. For example, every politician who wants to spend more resources on public education says that they are investing in the human capital of their society. Today, economists systematically contribute to policy discussions on maternity leaves, subsidies for child care and other social issues.
On a personal note, I was a graduate student at the University of Chicago in the late seventies where I met Gary Becker. I was interested in social issues. But because he was so intimidating as a scholar, I did not write my thesis under him nor was it on those concerns. Ten years after I obtained my PhD, and after I had moved to the University of Toronto, I wrote my first paper on the economics of the family motivated by a discussion in evolutionary psychology. Our interest on the economics of the family overlapped and we subsequently have had many professional interactions. I also began to realize that he did not know everything and that it is fine to work on topics which he had worked on.
Later in his life, he would sometimes introduce me as a former PhD student. At first I would correct him. But later I did not because perhaps he was right.

Gary Becker’s Grandson Ponders Opportunity Cost of College

“Louis Harboe with his parents, Frederik Harboe and Catherine Becker. Louis, now 18, got his first freelance tech job at age 12. Last year, he attended the Apple Worldwide Developers Conference in San Francisco.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) Ryan was headed to South by Southwest Interactive, the technology conference in Austin. There, he planned to talk up an app that he and a friend had built. Called Finish, it aimed to help people stop procrastinating, and was just off its high in the No. 1 spot in the productivity category in the Apple App store.
. . .
Ryan is now 17, a senior at Boulder High. He is among the many entrepreneurially minded, technologically skilled teenagers who are striving to do serious business. Their work is enabled by low-cost or free tools to make apps or to design games, and they are encouraged by tech companies and grown-ups in the field who urge them, sometimes with financial support, to accelerate their transition into “the real world.” This surge in youthful innovation and entrepreneurship looks “unprecedented,” said Gary Becker, a University of Chicago economist and a Nobel laureate.
Dr. Becker is assessing this subject from a particularly intimate vantage point. His grandson, Louis Harboe, 18, is a friend of (p. 6) Ryan’s, a technological teenager who makes Ryan look like a late bloomer. Louis, pronounced Louie, got his first freelance gig at the age of 12, designing the interface for an iPhone game. At 16, Louis, who lives with his parents in Chicago, took a summer design internship at Square, an online and mobile payment company in San Francisco, earning $1,000 a week plus a $1,000 housing stipend.
Ryan and Louis, who met online in the informal network of young developers, are hanging out this weekend in Austin at South by Southwest. They are also waiting to hear from the colleges to which they applied last fall — part of the parallel universe they also live in, the traditional one with grades and SATs and teenage responsibilities. But unlike their peers for whom college is the singular focus, they have pondered whether to go at all. It’s a good kind of problem, the kind faced by great high-school athletes or child actors who can try going pro, along with all the risk that entails.
Dr. Becker, who studies microeconomics and education, has been telling his grandson: “Go to college. Go to college.” College, he says, is the clear step to economic success. “The evidence is overwhelming.”
But the “do it now” idea, evangelized on a digital pulpit, can feel more immediate than academic empiricism. “College is not a prerequisite,” said Jess Teutonico, who runs TEDxTeen, a version of the TED talks and conferences for youth, where Ryan spoke a few weeks ago. “These kids are motivated to take over the world,” she said. “They need it fast. They need it now.”

For the full story, see:
MATT RICHTEL. “The Youngest Technorati.” The New York Times, SundayBusiness Section (Fri., MARCH 9, 2014): 1 & 6.
(Note: ellipsis added.)
(Note: the online version of the story has the date MARCH 8, 2014.)

The War on Drugs Likely “Increased the Rate of Addiction”

Source of graph: online version of the WSJ commentary quoted and cited below.

(p. C1) President Richard Nixon declared a “war on drugs” in 1971. The expectation then was that drug trafficking in the United States could be greatly reduced in a short time through federal policing–and yet the war on drugs continues to this day. The cost has been large in terms of lives, money and the well-being of many Americans, especially the poor and less educated. By most accounts, the gains from the war have been modest at best.

The direct monetary cost to American taxpayers of the war on drugs includes spending on police, the court personnel used to try drug users and traffickers, and the guards and other resources spent on imprisoning and punishing those convicted of drug offenses. Total current spending is estimated at over $40 billion a year.
These costs don’t include many other harmful effects of the war on drugs that are difficult to quantify. For example, over the past 40 years the fraction of students who have dropped out of American high schools has remained large, at about 25%. Dropout rates are not high for middle-class white children, but they are very high for black and Hispanic children living in poor neighborhoods. Many factors explain the high dropout rates, especially bad schools and weak family support. But another important factor in inner-city neighborhoods is the temptation to drop out of school in order to profit from the drug trade.
The total number of persons incarcerated in state and federal prisons in the U.S. has grown from 330,000 in 1980 to about 1.6 million today. Much of the increase in this population is directly due to the war on drugs and the severe punishment for persons convicted of drug trafficking. About 50% of the inmates in federal prisons and 20% of those in state prisons have been convicted of either selling or using drugs. The many minor drug traffickers and drug users who spend time in jail find fewer opportunities for legal employment after they get out of prison, and they develop better skills at criminal activities.
. . .
(p. C2) It is generally harder to break an addiction to illegal goods, like drugs. Drug addicts may be leery of going to clinics or to nonprofit “drugs anonymous” groups for help. They fear they will be reported for consuming illegal substances. Since the consumption of illegal drugs must be hidden to avoid arrest and conviction, many drug consumers must alter their lives in order to avoid detection.
Usually overlooked in discussions of the effects of the war on drugs is that the illegality of drugs stunts the development of ways to help drug addicts, such as the drug equivalent of nicotine patches. Thus, though the war on drugs may well have induced lower drug use through higher prices, it has likely also increased the rate of addiction. The illegality of drugs makes it harder for addicts to get help in breaking their addictions. It leads them to associate more with other addicts and less with people who might help them quit.
. . .
The decriminalization of both drug use and the drug market won’t be attained easily, as there is powerful opposition to each of them. The disastrous effects of the American war on drugs are becoming more apparent, however, not only in the U.S. but beyond its borders. Former Mexican President Felipe Calderon has suggested “market solutions” as one alternative to the problem. Perhaps the combined efforts of leaders in different countries can succeed in making a big enough push toward finally ending this long, enormously destructive policy experiment.

For the full commentary, see:
GARY S. BECKER and KEVIN M. MURPHY. “Have We Lost the War on Drugs? After more than four decades of a failed experiment, the human cost has become too high. It is time to consider the decriminalization of drug use and the drug market.” The Wall Street Journal (Sat., January 5, 2013): C1 & C2.
(Note: the online version of the commentary has the date January 4, 2013.)

Behavioral Economics Does Not Undermine Capitalism

Source of book image: http://www.brainpickings.org/wp-content/uploads/2011/10/thinkingfastandslow.jpg

Daniel Kahneman first gained fame in economics through research with Tversky in which they showed that some of economists’ assumptions about human rationality do not always hold true.
Kahneman, whose discipline is psychology, went on to win the Nobel Prize in economics, sharing the prize with Vernon Smith. (Since the Prize is not normally awarded posthumously, Tversky was not a candidate.)
I have always thought that ultimately there should be only one unified science of human behavior—not claims that are “true” in economics and other claims that are “true” in psychology. (I even thought of minoring in psychology in college, before I realized that the price of minoring included taking time-intensive lab courses where you watched rats run through mazes.)
But I don’t think the implications of current work in behavioral economics are as clear as has often been asserted.
Some important results in economics do not depend on strong claims of rationality. For instance, the most important “law” in economics is the law of demand, and that law is due to human constraints more than to human rationality. Gary Becker, early in his career, wrote an interesting paper in which he showed that the law of demand could also be derived from habitual and random behavior. (I remember in conversation, George Stigler saying that he did not like this paper by Becker, because it did not hone closely to the rationality assumption that Stigler and Becker defended in their “De Gustibus” article.)
The latest book by Kahneman is rich and stimulating. It mainly consists of cataloging the names of, and evidence for, a host of biases and errors that humans make in thinking. But that does not mean we cannot choose to be more rational when it matters. Kahneman believes that there is a conscious System 2 that can over-ride the unconscious System 1. In fact, part of his motive for cataloging bias and irrationality is precisely so that we can be aware, and over-ride when it matters.
Sometimes it is claimed, as for instance in a Nova episode on PBS, that bias and irrationality were the main reasons for the financial crisis of 2008. I believe the more important causes were policy mistakes, like Clinton and Congress pressuring Fannie Mae and Freddie Mac to make home loans to those who did not have the resources to repay them; and past government bailouts encouraging finance firms to take greater risks. And the length and depth of the crisis were increased by government stimulus and bailout programs. If instead, long-term cuts had been made in taxes, entrepreneurs would have had more of the resources they need to create start-ups that would have stimulated growth and reduced unemployment.
More broadly, aspects of behavioral economics mentioned, but not emphasized, by Kahneman, can actually strengthen the underpinnings for the case in favor of entrepreneurial capitalism. Entrepreneurs may be more successful when they are allowed to make use of informal knowledge that would not be classified as “rational” in the usual sense. (I discuss this some in my forthcoming paper, “The Epistemology of Entrepreneurship.”)
Still, there are some useful and important examples and discussions in Kahneman’s book. In the next several weeks, I will be quoting some of these.

Book discussed:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

The Becker article mentioned above is:
Becker, Gary S. “Irrational Behavior and Economic Theory.” Journal of Political Economy 70, no. 1 (Feb. 1962): 1-13.

The Stigler-Becker article mentioned above is:
Stigler, George J., and Gary S. Becker. “De Gustibus Non Est Disputandum.” American Economic Review 67, no. 2 (March 1977): 76-90.

Gary Becker Says “Economics Trumps Culture”

At the Chicago American Economic Association (AEA) meetings, I attended an 8 AM session on Sun., Jan. 8, 2012 in honor of the 30 anniversary of Gary Becker’s Treatise on the Family. At the end of the session, Becker discussed five issues related to the book.
One of these was the question of whether the features of the family are best understood on the basis of economic issues or cultural issues. He mentioned two examples: the Irish family and the Asian family. In the past it had been claimed that the Irish family would have enduring features due to religion and culture, features such as many children and women who stayed at home. Today, Becker noted, the Irish family looks much like other European families. He then paraphrased Singapore’s former ruler Lee Kuan Yew as having claimed in the past that the Asian family is superior to the Western family in its cohesiveness and loyalty. Today, Becker noted, Asian families look much more like Western families. Becker concluded that in the short run cultural factors may dominate, but that in the long run economic factors dominate. He said “Economics trumps culture.”
Becker’s discussion has broader relevance. One of the issues that I am grappling with in my research and teaching is the extent to which success at entrepreneurial innovation depends on cultural differences and the extent to which it depends on differences in constraints and policies.
If policies matter more, then it is easier to see a clear path toward progress, than if murkier cultural issues matter more.

Reduce Spending for Stronger Economy

Source of graph: online version of the WSJ article quoted and cited below.

(p. A17) To the extent that government spending crowds out job-creating private investment, it can actually worsen unemployment. Indeed, extensive government efforts to stimulate the economy and reduce joblessness by spending more have failed to reduce joblessness.

Above all, the federal government needs a credible and transparent budget strategy. It’s time for a game-changer–a budget action that will stop the recent discretionary spending binge before it gets entrenched in government agencies.
. . .
We can see such a sensible budget strategy starting to emerge. The first step of the strategy is largely being addressed by the House budget plan for 2011, or HR1. Though voted down in its entirety by the Senate, it is now being split up into “continuing” resolutions that add up to the same spending levels.

For the full commentary, see:

GARY S. BECKER, GEORGE P. SHULTZ AND JOHN B. TAYLOR. “OPINION; Time for a Budget Game-Changer; Assurance that current tax levels will remain in place would provide an immediate stimulus. House Republican budget planners are on the right track.” The Wall Street Journal (Mon., APRIL 4, 2011): A17.
(Note: ellipsis added.)