A Man of Numerous Ideas, Gary Becker Will Be Missed

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Many famous economists, even some Nobel Prize winners, have made their career based on one innovative idea. Gary Becker, the Nobel Prize-winning economist who died on Saturday, aged 83, had not one innovative idea, but dozens. Economic concepts that we take for granted today, such as human capital theory, choice of numbers of children, and effects of discrimination were not analyzed in terms of economics before Gary Becker wrote about them.

Becker received a BA in math from Princeton before going to the University of Chicago to get his doctorate in economics. He taught for 12 years at Columbia University, and then returned to the University of Chicago for the rest of his career.

Becker supervised many Ph.D. students, including two who became directors of the Congressional Budget Office, Republican June O'Neill and Democrat Robert Reischauer.

O'Neill, now a professor at Baruch College of the City University of New York, told me in a telephone conversation yesterday, "He had an enormous effect on his students," she told me. "Many went into subjects inspired by his work. Becker really set the pace with his application of economic analysis to areas that had not been considered in the realm of economic analysis-discrimination, decisions about marriage and family, health, the effects of education."

Reischauer, now a trustee of the Social Security and Medicare Trust Funds, told me, "Becker was a tremendous teacher, professor, and mentor. He studied behavioral economics before there was a term for it. He looked at political and social issues, such as discrimination and marriage, broader topics than economics had previously addressed."

Discrimination. Before Becker, the standard economic view was that only those who were the victims of discrimination were the losers. Becker, in a book that was based on his University of Chicago PhD dissertation, showed that discrimination also reduces the incomes of the perpetrators because they lose out on the purchase of goods and services. People with a taste for discrimination, either through prejudice or ignorance, will lose.

With free market entry, discriminating employers will go out of business, or find that their profits are reduced. Non-discriminating firms would be able to benefit from arbitrage as workers' values are determined by their marginal production. If employers discriminated on the basis of gender, race, religion, or sexual orientation, when doing so had no effect on job performance, employers would be effectively fining themselves for their prejudices.

Human Capital. Before Becker, the concept of education as an investment in human capital was practically unknown. Capital was a bank account, or equity, or an assembly line. Education was regarded simply as learning from school or college, not an investment that created a stream of returns. The term "human capital" was controversial because it equated people with machines. Becker's book, Human Capital, was published in three editions, and examined the rates of return on schooling for different groups, and incentives to invest in different types of education.

To give but one example, women's investments in education were caused by the cultural changes that enabled them to move into the workforce in the 1980s. In 1994, Becker wrote, "The enormous increase in the participation of married women is the most important labor market change of the past twenty-five years. Many women now take little time off from their jobs even to have children. As a result, the value to women of market skills has increased enormously, and they are shunning traditional ‘women's fields' to enter accounting, law, medicine, engineering, and other subjects that pay well."

Crime and Punishment. Before Becker, discussions of crime centered on possible mental illness and sociological behavior of criminals. Few considered that criminals might be rational. In a series of papers published from the late 1960s to 1990s, Becker showed that the amount of crime is determined by a number of factors influencing the costs and benefits of breaking the law. Criminals look at the likelihood of getting caught, the return from the crime, and the cost of law-abiding alternatives, such as getting a paying job.

Social policy can change these variables. It sounds obvious now that making it more likely that criminals will be caught, or making it easier for criminals to find legal jobs, can reduce crime, but no one had analyzed the variables in an economic framework before. This helped Harvard University professor James Q. Wilson to develop his "broken windows" theory, which suggested that aggressive policing would reduce crime.

Family Structure. In his lecture on receiving the Nobel Prize, Becker said that his six years spent writing A Treatise on the Family were the most difficult effort he had ever undertaken. The book, published in 1981, looked at the costs and benefits of love and marriage and the decision to have children. This cost-benefit analysis produced results that were often controversial and counter-intuitive, yet appear to be born out in people's behavior.

Important for modern demographics, Becker showed that the richer a society, the lower would be its birth rate. As the value of time rises, people have fewer children, because it becomes more expensive to care for them. The need for investing in skills in a richer society is another factor driving up costs of childbearing.

Sure enough, increasing income of different countries is one of the greatest predictors of fertility. As countries get richer, the birthrate declines. For example, Poland had a fertility rate of 3 births per woman in 1960, back when its GDP per capita was only $1,700 in 2012 dollars. Now the country has a GDP per capita of $12,700, and a fertility rate of 1.3 births per woman. Similarly, South Africa's GDP per capita has increased nearly 1,800 percent since 1960, and its fertility rate has fallen over 60 percent during that same time period.

In a profession that is often condemned for dwelling on the abstract and irrelevant problems, Becker focused on the major social issues of the day and found both surprising and compelling insights. Invariably he found that individuals were rational, a startling conclusion in a world all too willing to believe the opposite. Becker pioneered the frontiers of economics and inspired a generation of economists who have followed in his footsteps. He will be missed.


Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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