GARY BECKER: THE MAKINGS OF A NOBEL LAUREATE
Nobel laureate Gary S. Becker passed away at the age of 83 on May 3, 2014 following complications from a recent surgery. He was born in the city of Pottsville, Pennsylvania, a little coal mining town. When he was four or five years old he moved to Brooklyn, New York where his father became a partner in business.
He received the Nobel Prize in 1992 for his role in transforming the study of economics. Gary Becker did groundbreaking work in multiple areas including economics of discrimination, criminal behaviour, family decision-making and drug laws. His work was initially dismissed as irrelevant but soon his ideas were recognized by his peers. Becker fundamentally changed the way economics is studied. Before him economists predominantly studied business cycles, inflation, trade and investment. Now economists study racial discrimination, household decisions, fertility, inequality, charity-issues that have more relevance to the society and human life.
His ideas have become the basis for numerous policy recommendations. Becker’s ideas on fertility espouse the need for higher education for girls in developing countries to overcome population pressures. His ideas on crime support the policy shift to stricter punishments. Investing in education has become a primary concern for policy makers throughout the world following Becker’s idea of educational investment as precursor for human capital accumulation. Whether all of these policy recommendations are correct is debatable. However, it is undeniable that Becker has had a marked influence on policy-makers and his arguments raise important questions for even those who disagree with him.
Becker was inclined more towards studying mathematics before his interest in economics was sparked in freshman year when he accidently took a course in the discipline. He decided to pursue it further because of its mathematical rigour in explaining social organization. This catered to both his interest in maths and his desire to do something useful for the society.
In 1955, he completed his thesis on the economics of discrimination. His main conclusion was that discrimination not only imposes costs on the ones who are discriminated against but also the ones who practice discrimination. He also concluded that racial wage gap is determined by the prejudice of the employers. The relative wage of the minority is not determined however by the average level of prejudice but by the most prejudiced employer who hires a minority worker in spite of his averseness.
In 1960s Becker applied economic theory to family decisions, gender relations and marriage market. He viewed households as small factories producing goods such as meals, shelter and entertainment. This, he argued, explained that higher income families have fewer children since the cost for raising children is higher for such couples.
In 1964 he published a book on human capital, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, in which he examined the influence of education, training and experience on individual’s economic performance and on the larger economy. This book expressed his views on inequality. He viewed inequality as a good thing for human capital investment based on the reasoning that if more educated individuals earn higher incomes, others would be incentivized to invest in their education. This process will lead to knowledge accumulation in the society which will be beneficial for everyone in the long-run. This book, along with Donald Kirkpartick’s earlier work, forms the foundation for our understanding of learning and development.
Becker wrote for Businessweek, now Bloomberg Businessweek, from 1985 to 2004 and found that he ‘immensely enjoyed the opportunity to use economic reasoning to discuss important issues of the day’. Becker also wrote a joint blog with Richard Posner, the US appeals court judge and lecturer at the University of Chicago Law School staring from December 2004.
Becker’s ideas have sparked controversy and have not always been taken positively. His view of education as an investment, call to legalize marijuana and attempt to explain criminal behaviour as rational all created a stir in the academic circle when they first came out. Many still view his approach as imperial in its attempt to bring everything under the ambit of economic analysis. However, he never claimed that economics can explain all aspects of human behaviour. He merely added economic insight to the study of human behaviour.
As a behavourial economist, he took the unconventional approach and imposed the rationality model on human behaviour unlike other behavioural economists who borrowed from psychology to study the market. His approach and ideas were challenged but this opposition did not deter him. He firmly believed that conventions do not apply to ideas. Tim Harford writes in his blog that Becker said to him that “my whole philosophy has been to be conventional in things such as dress and so on but when it comes to ideas, I’ll be willing to stick my neck out: I can take criticism if I think I’m right.”
His contributions have been usually appreciated in hindsight; in fact, some of his ideas have transformed the discipline in such a fundamental manner that their effect is hard to appreciate now. They seem so ingrained in the discipline itself. For example, it is hard to conceive a time in economics when family decisions were not subject to economic analysis.
It is this unique approach to economics that led him to win the Nobel prize in 1992. His contributions to the field of economics have had a lasting impact on how economists study different facets of human behaviour and decision-making. Not all of his theories may be correct but they have stirred some interesting and critical questions for economists and social scientists.
Ms. Neelum Maqsood is a Research Associate at IDEAS. She has completed her MPhil in Economics from the University of Cambridge and BSc Economics from Lahore University of Management Sciences, and her interests include human development. Previously, she has worked as a Research Associate at IGC on the project of textile industry in Pakistan for which she contributed to the final report writing.
Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of the Institute of Development and Economic Alternatives