Answer to the Freakonomics Quiz: What Gary Becker Says Economics Is All About

Last week, I offered up a quiz asking what Gary Becker thought the only purpose of economics was. His answer was so surprising to me, that just to make sure I had it right, I asked him again after I made the post.

He confirmed his answer, and said that it is the same answer he would have given 50 years ago when he started studying economics.

As surprising as the answer was to me, commenter #24, Abe, got it right when he guessed, “to understand and alleviate poverty.” Congratulations to Abe.

What’s surprising about Becker’s comment — and I believe he is telling the truth and not just being politically correct when he says helping the poor is the point of economics, because he never worries about political correctness — is that he is a staunch Republican and a firm believer in markets. There is no reason why that belief in markets can’t go hand in hand with really wanting to help the poor, it just usually doesn’t.

In a market economy, there are inevitably winners and losers. So most folks who worry about the poor are turned off by markets, believing that some other system could do a better job for the worst off. Becker, however, would argue that markets, especially when combined with access to good education, are the best shot the poor have.

If you think globally, the poorest countries in the world stand to gain the most by the adoption of modern technologies like vaccines, the development of new strains of crops, easier access to information, etc. Lack of education, isolation, and bad governments slow the process, but faced with the choices of a) grinding out a subsistence-based economy forever, or b) inventing these things themselves, or c) living in a world in which these advances have already been made and now just have to be adopted, option “c” has to be the best scenario for developing countries.


Proudhon

" or c) living in a world in which these advances have already been made and now just have to be adopted, option “c” has to be the best scenario for developing countries."

Except when these advances are "adopted" through a huge influx of foreign "aid," which binds these nations and their illegitimate governments to the whims of western gov'ts and corporations. Roads, buildings, schools, hospitals, etc. are paid for by western States and corporations in exchange for guarantees and concessions by the poor nations' gov'ts.

That isn't a path to healthy free markets or alleviating poverty. Its a path to colonialism and imperialism. There is no real competition among the native economic actors. And the markets are most assuredly not free, thanks the native gov'ts acquiescence to foreign pressure (and the allure of greed gained through corruption)

frankenduf

i find this post to be too abstract- the fact is that the global markets are tilted towards the wealthy countries via the domination of the markets by private corporations- e.g. the choice of "grinding out" subsistence-based agriculture v. expropriating land for monoculture/export products has shown to be a devastating one for local farmers in poor countries- saying that an ideal market would benefit the greatest good cannot be confused with the reality of the current marketeering viz. the IMF, where privatization programs have increased stratification and poverty- the irony is that now the wealthy countries must step back from privatization (nationalizing banks and large manufacturers)in order to save their economies, while we prohibit the poor countries from doing so

Michael F. Martin

I think many people assume too much about economists' motivations from their methodological quirks.

Mike

Well let me be the first to say, economics is doing an awful job at what it's "all about".

What do econ majors do when they get out of school?

What percentage of them contribute to alleviating poverty? 3%? 5%? 1%?

Joe D

The crucial elements are twofold: Education of the participants (so they can recognize what is truly in their own best interests) and transparency of the market. Without both elements, you get the "invisible sleight of hand" of collateralized debt instruments, upfront profit for mortgage brokers with all the risk remaining in the back end when rates adjust and balloons come due, and sweetheart deals between energy companies and corrupt government entities.

M

2nd welfare theorem is a very elegant concept, however, I am a bit skeptical about its' empirical application. Although it's one of the best alternatives available......

TJ

This is a wise view, as it essentially advocates that developing contries adopt a 'first follower' strategy.

Let the wealthy countries do the heavy lifting, then adopt the technology and processes once they have been more commoditized.

The problem remains that we continually try to engineer social outcomes instead of trusting the market process to do so. So by twisting it to try and help the poor, we actually make it harder for them to see the fruits of such adoption.

Matt

@ #4 Mike
I think economics is doing it's job pretty well via China and India. Basic principles are being implemented there, and poverty is being reduced.

Eric M. Jones

The winners should not include the successful criminal classes who corrupt the markets, game the system, or get insider government handouts, golden parachutes, etc. These criminals are not 'economic winners".

And the losers should not include people with drug and alcohol problems, mental disorders, the homeless, unemployables, etc. These people are not "economic losers" whatever you think.

I think economists should concentrate on fine-tuning the mechanics of a long-lived, fair, self-correcting economic system that allows some individuals to get rich, but not so rich that their wealth becomes permanent, while giving the less fortunate some breaks so they aren't so utterly destroyed that their poverty is permanent. ( It would come as a surprise to many how expensive it is to be poor! This economic negative feedback must be eased.) Many countries and civilizations have failed at this--and they soon split into separate economic classes. The poor feel they have nothing to lose and the rich that they have everything to lose if the system changes. Eventually there is blood in the streets. Every hill in Europe has a rotted and abandoned stone-walled castle on its peak that shows how poorly this works.

The American founding fathers understood this and tried to make the system work to prevent a similar fate. We shall see..

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PaulC

Be careful of this belief that markets are the best shot for the poor. A lot of this nonsense comes from Arrow's theorems which rely on the spurious concept of pareto optimality and dont' really apply to real world situations.

The reality is that in some places, markets hurt the poor, because even "free" (unpriced) goods (like food) have market value. Since the poor have no market demand, there is corruption in the distribution of those countries where donated goods are sold to those willing to pay rather than given to those who cannot pay.

What's probably true is that markets lead to efficient production, and often to supply meeting demand, but there is nothing said about the market failure that results when markets try to supply goods to demand which cannot present itself through pricing.

Jonfoot

When boiled down to its most basic elements, I thought that the free market doesn't "inevitably" create "winners and losers." The effect of a free trade is a winner and winner. Free market, limited government economists believe that the government should not forcibly use its power to help the poor, but should create level playing field so that the poor can help themselves through trade, or benefit from the wealth created through trade (charity, etc).

assumo

"understand and alleviate poverty"

Was this a maxim on the altruistic nature of humanity, or the opposite?

- As rational actors are generally assumed to be motivated by personal gain, couldn't this apply only to that "povery" which we percieve and care about? In most cases, would the "poverty" that one seeks to understand and alleviate extend beyond one's own self?

dd

"There is no reason why that belief in markets can't go hand in hand with really wanting to help the poor, it just usually doesn't."

I'm insulted by that comment. I believe in markets (subject to a variety of imperfections), I fiercely believe in helping the poor, and with casual empiricism, I see no correlation between a belief in markets and a desire to help the poor. In fact, hasn't there been a recent literature showing that conservatives are more charitable than liberals?

To return the compliment, I'd say that there is a strong correlation between a belief in central planning and a conceited belief that one is morally superior.

Jar Jar Binks

So, what? Economics is all about being a social science better than other social sciences?

Social Science 2.0?

stephan

i believe economics is a good tool to understand and achieve the stated goal, but the problem lies in the goal itself. poverty can be eliminated entirely. poverty is not an independent variable but a result of the economic perspective not being truly applied in the first place.

Dave

@7
The companies creating the technology (through r&d expenditures) are not interested in providing this technology free of charge to developing countries, and the developing countries cannot afford it on market terms. Firms in developing countries are, likewise, unable to afford the technology. There is no reason to assume that technology will diffuse and become available to the poorest.

@8
It is debatable whether poverty is being reduced in those countries. For example, you are likely to be poor even though you have doubled your earnings from $1 to $2 a day.

And why does a belief in markets translates into marketfundamentalism? It is particularly important not to be confused with regards to the topic of technology (technology is applied information), since information is not easily provided in a free market structure because of inherent characteristics in excludability and rivalry. If the free market could handle the distribution of information, we would not need man-made economic laws like the Intellectual Property Rights.

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ukdan

I think we could bastardise churchill and say

'free market economics is the worse system for allocating resources - apart from all the others!'

Eric M. Jones

@ 13 "In fact, hasn't there been a recent literature showing that conservatives are more charitable than liberals?" -dd

I think Snopes debunked that a while back....If conservatives were more liberal they would be called liberals. However, the most conservative state, Utah, also has the highest-per-capita consumption of online porn. Is that what you mean by charitable...conservatives buying clothing for naked people?

I also want to add that helping the poor is a concept fraught with peril. If a poor person buys a lotto ticket, is that person better off winning or losing?

CJ

"What's surprising about Becker's comment... is that he is a staunch Republican and a firm believer in markets. There is no reason why that belief in markets can't go hand in hand with really wanting to help the poor, it just usually doesn't."

Are you kidding? This is quite revealing about the author's personal belief in the superiority of his own worldview and the inferiority of a conservative view. Does anyone really believe that the goal of Republicans, conservatives, and market believers is to screw the poor? No one wants to let children starve in the streets. No one wants to see the elderly go without needed medicine. No one wants to create a permanent class of impoverished citizens. The disagreement between liberals and conservatives isn't about the goal, it's about the means.

Market believers don't belive in the inevitably of winners and losers. We believe in small winners and big winners. As I tell my two young daughters, "It's not important to have as much as someone else. What's really important is that you have enough."

Market believers can support their view that old fashioned capitalism can eliminate poverty by looking at the development of the United States. While the "rich get richer," arguably the poor are NOT poorer. A rich person in the 1800s cooked on a wood burning stove, opened the windows on a hot day, and expected a letter to arrive in a matter of weeks. Today, most Americans living in "poverty" have a microwave, air conditioning, and access to email (at least at the library). All of these technological advancements were originally available only to the rich "first adopters," but as usage increased and technology improved, prices dropped so all could afford them.

Visit a truly impoverished country and see what "basic needs" really are: Clean water, adequate shelter, and safe food, and generally good health. Consistently meeting the first three needs will do more to improve health conditions than all the vaccines in the world. Despite our massive efforts to donate the means to achieve all of these basic needs, many impoverished countries have seen little real improvement.

Market believers don't think we should ignore impoverished countries. They just believe the best way to help the impoverished is to encourage them to embrace capitalism and teach them (rather than give or lend) the means to improve.

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DrNova

Right, as stated: the markets are NOT free. So, it's B.S.