Homo Freakonomicus

Steven J. Levitt and Stephen Dubner. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. HarperCollins. Spring 2005.

It is predictable enough that any popular social science book will inspire antipathy among academic social scientists—for being too simple, too fun, too easily understood. After all, what do university intellectuals offer the general public if not sweaty handfuls of painstakingly gathered arcana? And here is the successful crossover author just giving the stuff away between four-color covers!

So it is with some wistful jealousy that the tower-bound academic, staring down another “revise and resubmit” notice from a peer-reviewed journal, contemplates the immense popularity of a book like Freakonomics. Well, she thinks, how did the authors roost on the best-seller list in a season of beach reads? How did they get the subtitular “hidden side of everything” to thrill like an airport mystery or an addiction-recovery memoir? Your students are already slack-jawed over their suspiciously crisp copies of The Protestant Ethic; maybe this is something they could get excited about.

The coauthors—one gathers that Steven Levitt does the thinking, while Stephen Dubner does the glossing—begin by shuffling their feet in self-deprecation. Levitt, they claim, despite being a University of Chicago economist, is practically an ingénue when it comes to his chosen field. “‘I just don’t know very much about the field of economics,’” Levitt tells journalist Dubner at their first meeting, “swiping the hair from his eyes.” “‘I’m not good at math. . . . [I]f you ask me about taxes—I mean, it would be total fakery if I said I knew anything about any of those things.’” Economics needn’t be dismal, they seem to be saying, or a science. This ostensible mistrust of obscurantist expertise is doubtless partly responsible for the book’s sales and its expansion into a Times Magazine column. In a society where most people understand only two things about economics—that they don’t understand it, and that it dictates their lives—Levitt and Dubner promise plain talk, along with a fund of offbeat anecdotes.

It’s true that the book dispenses with the model-building and analysis of structural features (such as business cycles and monetary policy) that usually characterize macroeconomic research. Levitt focuses instead on individual decision-making. The strategy, repeated in each chapter, is to find a situation with colorful particulars (sumo wrestling! crack dealing in the projects!) and then to shake these off to reveal the core rationality that alone animates all players. Surface eclecticism belies an elemental monomania. The authors claim that “incentives are the cornerstone of modern life. And understanding them—or, often, ferreting them out—is the key to solving just about any riddle, from violent crime to sports cheating to online dating.” Levitt’s arguments are all based on the idea that human action is oriented toward achieving positive incentives and avoiding negative sanctions. The authors describe the doctrine of incentives as Fem>Freakonomics’s unifying theme: a self—your self, my self, anyone’s—is driven by a calculative rationality, bent on achieving some version of the good life. Fellow Chicago professor Gary Becker bequeathed this meager conception of human nature to economics in the 1970s.

Levitt, then, far from being a rogue, is really Becker’s dutiful heir. The ascription of incentive-seeking, rational motivation is extended with magnanimous universality. Levitt and Dubner assume that they can pretty well guess what the optimal outcome to any situation for any kind of social actor might be, from a 1940s Klansman to a teenage resident of Chicago public housing during the “crack epidemic” of the early ’90s, to a primary-school teacher who inflates her students’ scores on standardized tests. Subtract the local color, and all actors are located in similar markets that supply the incentives guiding their choices.

The doctrine works well enough in the second chapter, where Levitt describes what he calls “information abuse” by real estate agents. Realtors indicate to potential buyers that offering less than the asking price will be sufficient to secure the deal, meanwhile encouraging worried sellers to accept underbids. And yet when an agent lists her own house she will wait for the best possible offer. Why doesn’t she counsel the same patience for her clients? Incentives. Her percentage take of the difference between an underbid and the asking price simply isn’t worth her extra time and effort. As a seller, on the other hand, she reaps the entire difference in profit. Here the model of the utilitarian self works just fine—and even demonstrates a certain predictive capacity. This is mostly because markets for houses are, well, markets. We are used to assuming that buyers and sellers of commodities (including the commodity known as labor) make choices based on expedience. Why should a realtor, selling her daylight hours for commissions, be any different?

But in the same chapter’s other case study, the authors’ favorite explanation turns into incomprehension. They extend their discussion of information to an Atlanta chapter of the KKK in the 1940s. As an anti-Klan mole began publicizing their secret codes and symbols, Klansmen peeled away. Why was this? Levitt argues that they were demoralized by the loss of secrets. Without being able to practice what he calls “information-hoarding,” members lost interest. Here the incentive was supposedly to corner a market in confidential information—like the text of the “Kloran” and the positions of the group hierarchy from lecturer “Klokards” to thuggish “Chief Ass Tearers.” True, it is fun to share secrets, but it seems unlikely that the Klansmen preferred the KKK to, say, the local Masonic Temple solely because of the information-hoarding opportunities it offered. One had always felt safe in assuming that racism was the salient variable in explaining Klan participation.

When the authors look to explain cheating on high-stakes standardized tests in Chicago elementary schools, their doctrine comes up short again. Teachers cheated on behalf of students to inflate their scores; Levitt and Dubner argue that “cheating is a primordial economic act” resulting from a specific arrangement of incentives. Teachers had strong incentives to see their students pass, including the threat of job loss and the potential for a pay raise. Incentives against cheating—especially the perceived risk of being caught—were low. In this situation, Levitt suggests, the teacher weighs her possible gains against her possible losses in deciding whether or not to cheat. This computation is the entirety of the story he can tell. The authors do make passing reference to the historical context in which high-stakes testing has come to assume its lurid importance, but that’s as far as they go. Their teacher doesn’t game the system because she deplores the punitive federal politics of No Child Left Behind, or because she thinks her students are better served by a pedagogy not tied to standardized testing. She is just trying to avoid being left behind herself, while getting ahead by whatever means she can. No other motivation is conceivable among humans—or perhaps primates generally. As the authors claim in their Times Magazine column about lab experiments on capuchin monkeys, “That’s because economics is in essence the study of incentives, and how people—perhaps even monkeys—respond to those incentives.”

The book’s introduction announces the authors’ intention to continue Adam Smith’s project in The Theory of Moral Sentiments: to understand how the individual’s self-interest may be reconciled with “the greater moral plane.” They straightaway shelve this ambition; nonetheless, the invocation of the greatest liberal economist of them all is meant to certify their imputations of maximized utility. In Smith’s day, they tell us, “economic forces were vastly changing the way a person thought and behaved. . . . [I]ncentives were magnified tenfold.” And now that markets for labor and commodities are endemic, what behavior cannot be understood by the economist? As Levitt says, “Whenever I try to answer a question, I put myself in the shoes of the actors and I ask myself ‘What would I do if I were in that situation?’”

Smith, however, knew the limits of this approach. He feared that one’s own self could never be sufficiently shed to allow for a true appreciation of another’s condition:

Though our brother is on the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did and never can carry us beyond our own person and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way than by representing to us what would be our own, if we were in his case.

Levitt’s analytic process is the same, but without Smith’s misgivings. Like Becker, he sees a world consisting exclusively of markets—markets for everything—where we make our choices with the goal of “maximizing utility,” acting always with an eye to our own best advantage. Imagining this is the world everyone sees, he mistakes narcissism for sympathetic identification.

And so the centerpiece of the book, Levitt and Dubner’s stone, is an arrant tautology. Incentives are motivation, and motivation is incentives. The economist Amartya Sen has pointed out the circular reasoning in the theory of utility: what one does must be what one wanted to do. Any activity can be discussed in these terms. A better question is, why do people conceive of their self-interest so differently? The most casual study of rabid sports fans or canonized saints is enough to show that “self-interest” may include identification with the furthest-flung and most notional entities, at the same time that the self luxuriates in self-neglect. Self-interest need not be synonymous with individualism, either. The “relief” of guaranteed subsistence relieves all workers, whether they are pocketing unemployment checks or not.

But the problem with the discourse of the rational, market-navigating self is not only its analytic nullity. The greater problem is its potency as a metaphor for the way we live now. Of course economics, like any rhetorical project, is saturated with metaphor: the invisible hand, the rising tide, the marketplace. The freakonomist perpetrates a single metaphor in a kind of dogged rhetorical colonization of the idea of the self. Levitt’s imaginary calculating individual is the ideal subject of neoliberal economic reform, the expansion of the market into all areas of life.

In this Levitt is only a symptom. The trend in considering human beings as purely and solely rational maximizers of gain and avoiders of loss has a longer history than the popularization of Gary Becker’s theories. Since the explosion of market exchange, around the time Smith was hashing out his moral theories, seeing ourselves and others as market players has been irresistibly, sensibly alluring. How hard it is to think otherwise of ourselves these days! How naturally we grasp ourselves as rational navigators of various markets: markets for friends and lovers, for career advancement, for our weekend leisure time, our political commitments. We budget and invest our time, our effort, our sympathies and pleasures. Any social and economic regime invokes a certain kind of subject, and if we want to be heard and understood we respond as called. (We even buy the books that call us in this way.)

In neoliberal doctrine, the creation of markets is presented as the best alternative to problems not only of the accumulation and redistribution of capital, but of goods previously considered unsuitable for the rough shakes of market corrections. Blair’s “stakeholder society” and Bush’s “ownership society” are based in just such an understanding. Bush and Blair naturally take their slogans from shareholder prospectuses. And both rhetorics hail an entrepreneurial subject who knows life as a series of markets (running, one imagines, from lunchbox trades in the cafeteria right through to portfolio diversification in our Personal Retirement Accounts). If Bush promises to make it easier for you to own a home, then what does it matter if you or anyone else has a right to shelter?

These policies are meant to cut the tottering legs out from under what remains of the postwar welfare state. This once-vast edifice was based on a different grasp of human motivation—and Levitt can’t tell us anything about it. Forms of exchange that involve imagining oneself as a member of a collective that shares a common destiny fall outside even his passing reference to moral incentives. There is, though, a body of popular social science that speaks of “gifts” rather than “incentives.” Written in the early ’70s under the influence of the visionary French anthropologist Marcel Mauss, these books described exchange systems operating outside of contractual, monetarized markets. For Mauss, society was made possible by constant mutual giving. A debt to unidentifiable others that can never be calculated or repaid becomes an ambient obligation permeating the whole of collective life in precontractual societies. Gift exchange presupposed a self far different from our familiar universal maximizer.

Several popular works of social science (including Carol Stack’s All Our Kin and Gareth Steadman-Jones’s Outcast London—both 1971) attempted to apply the lessons of Mauss’s fieldwork to public policy. Of these books, Richard Titmuss’s The Gift Relationship (also 1971) was perhaps the most important and adroit. Titmuss compared the systems for supplying blood for medical use in the US and Britain. In the US, commercial blood banks bought and sold blood, often from storefront operations in poor neighborhoods, while in Britain blood was solicited from the general population and donated for free.

Gift exchange was a political issue for Titmuss, who wanted to prove that both its functions and ethics remain relevant in market societies. He argued that gifts are morally preferable to commodity transactions: they hail us in a spirit of fraternity that promotes an expansive definition of the self. Gifts made to strangers, like the ounces of blood that disappear into an unknowable use in some surgical operation, allow us to acknowledge our intrinsic mutual indebtedness. Blood recipients have a recognized debt but no recognized creditor (such as those who loom above charity cases, invariably provoking their resentment). Anonymous gifts diffuse a more subtle debt throughout a population of strangers, and their value remains incalculably precious.

Titmuss naturally favored the British voluntary system for collecting blood over the American system, split (like so many of our social welfare systems) between market and voluntary collection methods. He complained that “the commercialization of blood and donor relationships represses the expression of altruism, erodes the sense of community.” Chicago economists shrugged in response, and still do. As Levitt and Dubner patiently explain, “Morality, it could be argued, represents the way that people would like the world to work—whereas economics represents how it actually does work.” And supporters of “free markets” don’t argue from morality anyway; they short-circuit any such soft-headed appeals by claiming with the sobriety of the realist that markets simply function better. Everyone knows the catechism: markets are the most efficient, predictable, and stable distribution system.

The economist Albert Hirschman calls this his discipline’s “reactionary thesis”: that any other attempt besides markets to organize distribution will fail. According to this thesis, non-market systems may have “all the theories of virtue,” but they only result in “all the consequences of vice.” Yet Titmuss’s account of the privatized segments of the American system demonstrated that it was not only morally debased. Compared to the British voluntary system, commercial markets in blood are less efficient (they lead to more lawsuits), more dangerous (they result in unsafe collection methods), and more wasteful (blood stores are not regulated by hospitals’ needs). Never mind idealism; markets aren’t always the best, fairest, and most efficient methods of distribution, as Americans in need of health care can these days discover for themselves.

Titmuss had a sizable public (The Gift of Blood was a New York Times Notable Book) ready to consider that some goods have no exchange value—they are so valuable they cannot be priced. Indeed, citizens of wealthy nations once managed to conceive of themselves in ways that supported the universal provision of these vitally mundane goods: health care, affordable housing, the protection of children from destitution. Political rhetoric, social policy, and even popular social science books invoked us as bearers of solidarity. In Titmuss’s view, federal pension systems and socialized medical coverage were like trace elements of the gift system, a compartmentalization of the formerly total basis of solidarity. And donations of blood made Britons feel literally a part of the National Health System.

The irony is that the solidaristic self attends, perhaps, more keenly to human difference than does Levitt with his sympathy. Western welfare states in their ascendancy did not ask us to discern the fundamental rationality uniting all the activities of a diverse population; they were designed to ameliorate the harshness of capitalist accumulation processes. With affecting modesty, they merely asked us to recognize that everyone is subject to the downsides of markets, whether our retirement savings disappeared in some bubble, or the local labor market has no use for our skills. These days, the idea is that the shortcomings of markets are somehow solved by increasing their number and reach.

To speak of what lies outside the market would make no sense to Levitt and Dubner. And yet we can recognize that we both already are and can be more than the rational maximizers described by the freakonomists and flattered by Bush and Blair. The well-being of nations is now measured by economists, while other social scientists run behind, adding up the costs. (That sociology and anthropology lost out to economics as the authoritative social science, and that we came to believe what the University of Chicago told us about ourselves, is an important part of the story of the last thirty years.) But there are alternatives to markets, ones that even satisfy pragmatic concerns about efficiency. A hundred years ago Durkheim had to argue that there was a terrain of the social, distinct from individuals. The task is now to insist on a social world distinct from markets. And to make one.

The clock hands have pressed forward while you blustered on about the real hidden side of everything. The students have fled the basement classroom for the sunlight of the park. And someone left behind a tight copy of The Protestant Ethic, no dog-eared pages. Those Protestants, with their delayed gratification and re-investment strategies, were certainly calculative. Their aspiration, though, was so quixotic as to defy belief: to assuage their terror about which eternal fate their God had chosen for them at birth. Was it heaven or the fiery pit? Weber, sufferer of a 6-year bout of depression and contractor of at least one duel, never did anyone the injury of assuming them merely rational.

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