May 10, 2014
If there is one person to blame for economists’ habit of opining on everything, it is Gary Becker, who died on May 3rd. Not content with studying the world’s economies, he was the first prominent economist to apply economic tools to all aspects of life. His revelation was the sort that seems obvious only in hindsight: that people are often purposeful and rational in their decisions, whether they are changing jobs, taking drugs or divorcing their spouses. This insight, and the work that followed from it, earned him a Nobel prize in 1992. No less an eminence than Milton Friedman declared in 2001 that Mr Becker was “the greatest social scientist who has lived and worked in the last half-century”.
At the heart of Mr Becker’s work was the view that “individuals maximise welfare as they conceive it.” Welfare need not mean income; it could derive from the pleasure of altruism or the thrill of deviancy. But critically, this thesis implied that people respond to incentives—a realisation that opened the door to insights across the whole range of human activity.
Mr Becker first used this approach in his doctoral study of discrimination, a raw issue in 1950s America. At the time economists’ models assumed that employers cared only about productivity, whatever the colour of the worker. Shunting this view aside, Mr Becker instead assumed that many individuals had a “taste for discrimination”, and perceived themselves to be worse off when forced to work alongside people of other races. He then explored how this preference affected labour markets.
In America, where the black population was roughly one-tenth of the total, discrimination against blacks led to relatively small reductions in white incomes but far more substantial ones for black workers. In South Africa, with a far higher proportion of blacks, discrimination brought much larger reductions in incomes across the economy. Mr Becker pointed out that although competition from more rational firms might gradually eliminate corporate discrimination, market forces alone would rarely erode discrimination rooted in the tastes of workers or consumers. His book on the subject, “The Economics of Discrimination”, became the foundation for subsequent research.
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