Hoover Daily Report

A Gifted Economist and the Ultimate Social Scientist

via Wall Street Journal
Monday, May 5, 2014
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Gary S. Becker, who won the Nobel Memorial Prize for Economic Science in 1992, was the Rose-Marie and Jack R. Anderson Senior Fellow at the Hoover Institution and University Professor of Economics and Sociology at the University of Chicago.

When Gary Becker of the University of Chicago died on Saturday at age 83, the world lost one of the great economists of the past century—and one of its most significant social scientists. Becker believed that economics could be used to explain all social behavior. He proved it by analyzing topics believed at the time to be beyond economic analysis. His work was so revolutionary that it was viewed as heretical when it first appeared in the late 1950s, but it was eventually recognized with the Nobel Prize in economics in 1992.

Thinking of a child as an economic good, as Becker did, or theorizing that discrimination was a conscious choice that traded off a preference for discrimination against profits, seemed to many to be odd and immoral. He changed most of their views, once the skeptics recognized the power of his ideas in explaining the real world. Becker's work had important policy implications that would work to the betterment of humankind.

With his doctoral dissertation in 1955, Becker sought to understand both how discrimination would affect its victims and when discrimination's effects would be most pernicious. Becker treated discrimination as the reflection of a taste for one group over another but recognized that not everyone had the same preferences. As a consequence, markets would ensure that the disfavored employees would work first for those companies that had the least distaste for them.

This implied that when there were large numbers of individuals in the disfavored group, their wages would be much below that of the favored group, because they would be forced to work even for those who disliked their kind. When the disfavored group had few members, the wage difference between the favored and disfavored would be very small or nonexistent because they could find employers who had little distaste for them. Thus, for example, African-Americans suffered more from discrimination than did Jews because blacks constituted a much larger population. The difference in discrimination experienced by the two groups held true even when comparing individuals with the same education and skills.

Becker's economics of demography was among his most important theories. He observed that in the 19th century high-income families were larger than low-income families, but in the latter part of the 20th century the pattern reversed. Rather than resorting to circular taste-based explanations, Becker reasoned that rearing a child combined both goods and time, primarily the mother's. The goods component included food, clothing, shelter and the standard expenditures that one makes raising a child. The time cost varied with the mother's wage rate.

The "cost of a child" was lower for low-wage women because the value of their time in the labor market was lower than that of a high-wage woman. As a result, Becker postulated that families in which the mother has low wages are likely to be larger than families with high-wage mothers. In the 19th century, the pattern was the opposite because high-wage women did not work and the value of their time outside the home was low.

His theory about family size—which has been found to be true almost universally—had dramatic policy implications. The most effective way to reduce population growth is to educate girls so they will have a better opportunity to earn high wages as adults, which induces them to have fewer children. This view now informs development policy throughout the world.

In the 1960s, Becker also developed a theory of human capital that stressed the value of formal schooling and learning on the job. The theory yielded very specific predictions for wage patterns over the life cycle. Because skills are acquired as a career progresses, wages rise with experience but at a decreasing rate. Human capital grows rapidly in the first years on the job and more slowly later because the most important skills are learned first.

Consequently, raises for young workers are larger than those for old workers, and eventually earnings may even decline as human capital deteriorates with age. The theory also implied that turnover rates for young workers, who had fewer skills that made them valuable to a particular firm, would be higher than those of more senior workers. These predictions are borne out in data from many countries and time periods.

Becker also emphasized the wage-enhancing benefit of formal schooling. The educational establishment was at first hostile to this view, resenting a theory that treated education as a mere income-producer. As evidence mounted that education is the single most important factor in raising income, the establishment came around. His insight showed how important education and teachers are to society.

His "Treatise on the Family" (1981) was a comprehensive view of family life that also used economics to reason through behavior. He understood that caring for children was an act of altruism and an investment. He studied gifts, bequests and primogenitor (giving all of an estate to the first born). He examined family formation and dissolution in the context of human capital. His theories of marriage and divorce reasoned that those who had more "family-specific capital" were more likely to stay together, which is why families with children have lower divorce rates than those without, why divorce rates fall with years of marriage, and why couples who are well-matched in education, religion and other characteristics are more likely to stay together.

Becker's family economics was, like his other theories, resisted. Yet its predictions were confirmed in many different real-world settings, winning over most of his critics to the extent that Becker's view is now considered mainstream. He was awarded the Nobel Prize in large part for his work on the family.

Becker also made seminal contributions to understanding the trade-off between punishment and crime detection as deterrents to crime, how the behavior of one individual affects peers, how advertising affects consumer preferences, how to provide organs for transplants in the most efficient way.

Gary Becker was a giant who used his genius to make sense of issues that had formerly resisted analysis. He integrated economics into more general social science and won over his critics. He demonstrated that analytic thinking and economic analysis were the social scientist's most powerful tools. He went beyond scholarship, using his ideas and knowledge to inform policy, which resulted in his being awarded the Presidential Medal of Freedom in 2007. There is no doubt that his ideas will influence scholarly research for generations.

Mr. Lazear, who was chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.