The now-underrated Gary Becker

Not all of his ideas aged well, but the approach and concepts he introduced should be our guiding lights.

Tyler Cowen writes in his new generative book on who the GOAT among all economists (dead or living) might be:

”I should add that much of Becker’s work has not aged well in the last ten to fifteen years. In recent times, economics has become more like sociology than sociology has become like economics. Behavioral economics has assumed greater importance, relative to the relative price effects and rational choice approaches that are so prominent in Becker’s work. His “economics of the family,” which seems to rationalize male breadwinner dominance, is now considered somewhat chauvinist or at least old-fashioned, though it fit the 1960s frame he wrote in. Even at the University of Chicago, new hires do not seem to be moving in the Beckerian direction. Hardly any current up and coming young economists seem to regard Becker as a critical influence or an inspiration, even if his indirect influence on them is immense. Becker’s breadth of topics has won out as a dominant approach, but not his modeling methods or his obsession with demonstrating the rationality of different social practices.”

I agree, and I regard this as a rather sad development. I would also note that Becker is often misunderstood (which was partly the fault of his writing style). Consider for instance his ground-breaking idea that competition tends to undermine employer discrimination. Becker never actually wrote or said that it is especially likely that competition completely drives discrimination out of the market; quite the contrary, he used to emphasize that often it might not be the case. There would still be discrimination in competitive economies, it just isn’t that pervasive as in less competitive markets. There is fairly recent evidence that confirms most of Becker’s predictions.

Or consider the case of the division of labour within the household. Becker emphasized gains from specialization between household members, such as husbands and wives. Obviously, a lot has changed since Becker wrote on the household gender division of labour. But should his insights be considered passé? I think not. There is still division of labour within the household, but now complete specialization is quite rare, and furthermore, specialization often takes forms different from the Beckerian “market vs household” division. Beckerian economics can help us make sense of these changes. For instance, complete specilization to household work is now rare as the value of women’s time has increased rapidly, fertility has declined (child quality gained at the expense of child quantity), and we have modern household appliances that make housework much less time-intensive. Properly construed, these are all very much Beckerian ideas and insights. It is hard to make sense of these societal changes without immersing ourselves in the study of human capital, household production and family economics, all pioneered by Becker first and foremost. Also, much criticism is directed at Becker, especially by feminists, for him writing that women may have an “innate” comparative advantage in household work. A much more important insight from Becker (and before him, Adam Smith) is that specialization can pay off even if individuals are initially identical (a point I have stressed on this blog a number of times). Also, small initial differences are magnified if individuals specialize for different tasks, as they invest in skills and knowledge that is useful in their specialized area, and so they become more and more different from each other. According to the feminist author Simone de Beauvoir, “one is not born, but becomes a woman”. Such a statement actually follows from Beckerian economics. Furthermore, in his ‘Treatise on the Family’, Becker does acknowledge, that in a modern society, the time of men and women might be increasingly complements (as opposed to substitutes) to each other (even though he does this in a “side comment”, and without explaining why this might be the case) which limits the benefits from specialization.

I would go even further and argue that some of Becker’s work might hold the key to integrate new approaches in economics with the traditional neoclassical economic approach. Consider behavioural economics. Behavioural economists most often emphasize lack of rationality on the part of economic actors. Becker’s body of work contributes to debates surrounding individual rationality in at least two ways: First, in a 1962 paper he pointed out that rationality is not required in order to derive the law of demand. Consumers acting randomly still respond to changes in their budget sets. When the price of apples increases while the price of oranges falls, consumers’ opportunity set changes in a way that they are able to buy relatively fewer apples and more oranges; in essence, the market “forces” even irrational consumers to respond to changes in relative prices. More generally, individual irrationality does not imply market-level “irrationality”, in that markets create and foster an environment where households and firms are at least partly forced to behave in a way consistent with rational choice.

Second, the concepts of household production and human capital can be used to analyze apparent deviations from rationality, and also individuals’ efforts to overcome their own imperfections. For instance, individuals can invest in their “imagination capital” in order to make themselves more forward-looking and patient. Likewise, altruism can be endogenized by having actors invest in “altruism capital”. Some individuals may be better in ordinary decision-making (they appear “more rational”) because they have better household technlology. Part of it is education; people who are better educated are usually better decision-makers in every area of their lives; a very Beckerian idea. To me, the key to “Beckerian behavioural economics” of this type is the insistence that, even though people are highly imperfect, they can make themselves better versions of themselves by investing in different forms of human capital. Furthermore, people are often better judges of how they can improve themselves than government beaurocrats or behavioural economists and other scientists. Providing people with more opportunities thus might be better than traditional paternalistic interventions.

I could go on and I will likely write more on “Beckerian economics” in the future. On the whole, Becker is probably the economist I learned the most from, even though I was not formally his student and haven’t met him (I could have met him had he lived a bit longer). He was also a true social scientist who really wanted to understand the world, which is a prerequisite of improving it. He is sometimes portrayed as a cold-hearted “economic man”, or crude utilitarian, but his vision was I would say broader than that. He would regard the alleviation of poverty as the main task of economics, while his work on discrimination emphasizes how market institutions create more opportunities for minorities, women and other marginalized groups. Digging into these more “philosophical” aspects of his work is a topic for another couple of blog posts.