An economist for the ages

Like many others, I first met the Nobel laureate economist Gary Becker, who died earlier this month, by reading his seminal works “Human Capital” and “The Economics of Discrimination”.

Several dozen outstanding economists have won the Nobel Prize in Economics since Sweden’s central bank began awarding it in 1969, but Becker is among the handful who have fundamentally transformed how economists (and social scientists more generally) think about a wide array of important economic issues.

Becker was remarkable for applying his penetrating insights, especially concerning economic incentives, to issues that had been mostly underexplored by economic analysis.

This included viewing education as an investment, asking who gained and lost from discrimination, examining how families allocated their time and explaining women’s fertility decisions.

His research on any one or two of these issues might well have won him a Nobel Prize on its own; to develop important insights into such a wide range of questions is truly remarkable.

He amply deserved the rare accolade accorded to him by his long-time mentor and friend, the late Milton Friedman (himself a Nobel laureate who, like Becker, transformed economists’ thinking in many areas).

Becker, declared Friedman, was “the greatest social scientist who has lived and worked in the last half-century”.

Becker’s constant focus was on the main forces driving human behaviour and people’s interaction both in markets and in non-market activities.

Early in his career, his work was often criticised for being overly dependent on economic analysis in dealing with big social problems, sometimes touching raw nerves on very sensitive issues.

For example, the notion of modelling children as a durable good seemed crass to some, but led Becker to analyse the allocation of parental time and financial resources.

He showed how this insight could predict trends in female labour-force participation and birthrates, and led to the policy conclusion that the best way to lower high birthrates in poor countries was to educate women.

Better education would raise women’s wages, making staying at home more costly, and would lead to higher female labour-force participation and a voluntary decline in birthrates.

This analysis reflected Becker’s deep belief in the power of incentives to lead people, in pursuit of their own interest and interacting within and outside markets, to achieve great things with minimal government input.

In this sense, he was very much in the tradition of the great 18th century Scottish economist Adam Smith, whose writings Becker regarded as one of the greatest influences on his career.

Equally off-putting to some was the notion that education was an investment — that an important reason to pursue post-secondary schooling, for example, was to raise one’s future earnings.

The education establishment recoiled at what it considered a less-than-noble reason to seek higher education.

And the idea that one could model the economics of racial discrimination as rational, if deplorable, behaviour and trace out the implications was sometimes misconstrued as paying insufficient attention to the character and behaviour flaws of those who discriminate.

Truth will out, as Shakespeare reminds us, and eventually even Becker’s harshest early critics came around to appreciating his deep insights and conclusions.

For example, the education industry now touts the economic value of a college degree. And governments around the world conduct vast surveys of households’ time use.

Few economists today work on these and related problems without building on Becker’s foundations or labouring under his strong influence.

On a personal note, some of my early research on the best way to tax families and on the effects of taxes on human-capital investment built on Becker’s insights.

Becker was a rarity among economists in recent decades. He often looked at broad, long-range trends and data, comparing things like family structure, number of children, and women’s roles in the home and the market across many decades and even from one century to the next, or across very different societies.

Cumulatively, his work yielded powerful conclusions, not only explaining trends in birthrates, but also showing that preferences for discrimination led to a tradeoff with profits.

Workers who did not face discrimination in sectors where animus was rife would win, while the losers would include not just those directly being discriminated against, but also workers forced to compete when those workers sought employment elsewhere.

Becker relied on rigorous standards in evaluating government policy. He knew, and documented, that government solutions to market failures could themselves fail, with the cure turning out to be worse than the disease.

He sought to compare what was likely to be the actual government programme, tax or regulation to the problem it purported to solve, not to the idealised textbook solution academics favour but that is rarely adopted.

The basic economic analysis that Becker developed was applicable everywhere, for everyone, and for all time. Conditions in the US in the 19th and late 20th centuries — or in North America and Europe and developing Asia, Africa or Latin America — might differ; but the same economic models could be used to understand changing events and circumstances.

In this sense, Becker was a great economist and a truly remarkable social scientist. His work stands as a testament to the power of deep thinking and the courage to follow it to its logical conclusions.

That seems especially relevant in today’s world, in which technology tempts us merely to scratch the surface of so many issues.

He was a tremendous colleague at the Hoover Institution, a true and supportive friend, and admirably humble despite his incredible intellectual influence. He will be sorely missed. 

The writer, professor of economics at Stanford University and senior fellow at the Hoover Institution, was chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993. ©Project Syndicate, 2014. www.project-syndicate.org