Gary Becker Method

Freedom never comes cheap. But it is not a losing battle.

Gary Becker

At the beginning of May, the great Gary Becker passed away. There are not many people in economics whose reasoning opens up a new era. This can be said about Becker without any exaggeration. He figured out how to make the subject of economic analysis areas that had previously been beyond the reach of economists: crime, discrimination, domestic work, human capital. At the same time, the models proposed by Becker for describing these new objects for the economy were so convincing, notes Konstantin Sonin, that they became the basis for developing economic policy, changing laws and rules of the game.

Practical economist

There is no need to outline the professional results achieved by Becker, which were awarded the Nobel Prize in 1992. Becker was lucky with a Russian guide: in the 1990s, he became Rostislav Kapelyushnikov, known for his work on institutional economics and informal employment. The result of his many years of work on the “Russification” of Becker was an almost 700-page volume published in 2003. Against the backdrop of the terrible quality of many Russian translations of economic books, Becker’s volume, in which Kapelyushnikov edited the texts, translated a good half of the chapters himself and accompanied them with a summary of Becker’s main works - an unattainable book publishing example.

Becker is an absolute pleasure to read. His research does not require knowledge of super-complex mathematics; following Becker’s logic is one of the best ways to teach the principles of economic thinking, and the conclusions that Becker comes to are unexpected, but at the same time obvious and made in complete agreement with intuition and common sense.

There are a lot of economists who live in a theoretical ivory tower and only occasionally descend into the mortal world of the everyday problems of economics. Another set of economists do not disdain everyday life, but bring to the world only a very limited set of ideas that were invented or once learned. For example, that the budget should be kept in balance or that industrial policy should stimulate innovative developments.

Becker is not of this breed at all. He thinks very carefully about the particular conflicts of modern economic policy. At the same time, using theoretical constructs - a conceptual prism that allows you to analyze and solve specific economic problems. But Becker is less like a dogmatist, whose views, when brought into contact with reality, produce predictable reactions. Therefore, it is not always possible to guess what he will write about some problem or event. Even if you know its theoretical context.

Ideas and method

People pay more attention to their purchase choices than to the candidate they vote for because purchases have a direct impact on their well-being.

Gary Becker

The epigraph to this chapter is not an idea, but a method. It illustrates Becker's approach: looking at non-economic phenomena in terms of goals, benefits, costs and risks. A famous illustration of this approach is Becker’s proposal to sell immigration rights to countries like the USA and Great Britain, where the number of people wishing to enter obviously exceeds the capabilities of the host country. An entry fee - for example, $50,000 (and if there are too many people willing and at that price - an auction ) - is better than administrative restrictions. The latter should be preserved only for lawbreakers, Becker argued. Here are the advantages of this scheme:

1. people who are most interested in the host countries come. They will select themselves thanks to the entry fee. These are people with the highest differential between wages in the country of residence and in the country where the person wants to go;
2. the benefit goes to those who need it most. Humanity has not yet come up with a better way than money to measure the comparative need of one item for two different consumers;
3. contributions make it possible to attract relatively young people to the country - those who hope to return the starting “investment”;
4. concerns about migrants receiving social benefits for which they did not pay are alleviated.

Readers of Becker's "serious" texts should recognize in this argument the same logic as in his famous Crime and Punishment . A criminal (as in the previous discussion, a migrant) is a rational economic agent who compares his profit from an illegal act with the costs: the severity of the punishment and the likelihood of being caught. By influencing these two values, the attractiveness of crime can be reduced.

These examples are the essence of Becker's approach: to look at people's economic behavior as the actions of agents who have a goal (rather than acting aimlessly) and sometimes even weigh benefits and costs. If this were not so, economic policy would be impossible at all: people and firms would not respond to incentives. At the same time, of course, people do not maximize benefit, but well-being or their satisfaction with life. It, as Becker said in his Nobel lecture, depends not only on benefits and costs, but on human values ​​and preferences. For example, from his tendency towards altruism, egoism, masochism, etc.

Economic imperialism

Becker's method made him (by a wide margin) the most prominent economist of the 20th century in terms of the influence of theory on empirical research ( calculations by Steven Levitt, author of Freakonomics).

It would seem that behavioral economics has refuted the overly rationalistic approach. Becker himself, who did more than anyone else for the development of behavioral economics, did not like to be included in this direction - because of the denial of the rational, characteristic of many behaviorists. But Becker himself, of course, is alien to narrowly understood rationalism. For example, in his work on advertising, he interpreted its consumption as the perception of individual images and social models. The pleasure of owning Nike sneakers, in addition to the fact of owning the item, also consists of the feeling of belonging to a significant group of people who also have such sneakers. The very idea that owning this item is “cool,” and the connection of this feeling with a reference group that thinks the same (“all the guys wear it”) is the result of advertising.

Therefore, as Justin Wolfers of the Brookings Institution correctly noted , for Becker economics was not a field of study, but rather a method of analysis. This gave Becker the opportunity to use the power of the economic method to understand things that lay far beyond the scope of traditional economic research. Before Becker, his main themes were not considered economic at all, but after that they became almost central to economics.

Becker left significant positions and theoretical models on many of the most important subjects of modern economic policy. For example, he showed how modern capitalism strives for a model of "capitalism for its own". This occurs due to the nature of government regulation and the struggle of interest groups to influence politicians. Each act of government regulation gives serious preferences (“concentrated success”) to a small group of winners. And the costs are “spread out” across a wide range of economic agents so that for each individual these losses are not tragic. This is why it is so difficult to curtail government support programs, even if they were launched as temporary. The result of this asymmetry in the distribution of benefits and costs is an unequal playing field (with benefits for leaders), high barriers to entry into many markets and professions.

However, the party that is losing in an attempt to influence government regulation can also unite and defend its interests, although it is more difficult for it to do this than for recipients of preferences. Becker explains his optimism (see epigraph), his hope for freedom, by the competition of interest groups. As long as there is competition, the “cause of good” is not lost.

Blogger Becker

Gary Becker's thoughtfulness, thoughtfulness, and ability to be unexpected made him a sought-after contributor to Business Week, WSJ, and other publications in the last thirty years of his long life. BW published more than 200 monthly columns by Becker. In 2004, after stopping writing for BW, Becker and fellow Chicago Law School judge Richard Posner launched an excellent weekly blog in which they spent a decade arguing with each other and dismantling various economic stereotypes.

In his blog and public appearances, Becker has consistently defended the idea that the state is as much to blame for the failures of capitalism as the market. More precisely, government policy failures intensify crises, making them more severe and prolonged. Of course, before 2007, banks made many mistakes when lending to unreliable borrowers. But governments pushed them to do this with low interest rates and incentives for home purchases. Along the way, states got into debt, which greatly prolonged the crisis and made it difficult to get out of it.

Becker-Posner's blog contains many important considerations that are a must-read for policymakers. For example, an analysis of the reasons for the high cost of American medicine in comparison with European and Japanese ones. According to Becker, there are three problems here:

1. patients have no incentive to refuse expensive procedures that they do not need, since they pay only 11% of total healthcare costs out of their own pockets;
2. Incentives for employer-insurers to reduce health care costs are low due to generous tax deductions;
3. There is no incentive for doctors to save either, since the income of doctors and hospitals in the United States is more closely related to the cost of medical procedures than in Europe.

The main point of Becker's tax will is to eliminate taxes on investments and savings to eliminate double taxation. The second argument against these taxes is that they disincentivize capital accumulation, which ultimately leads to lower wages. Even worse, modern tax systems are not neutral to the types of investments and place them in different competitive conditions. The second tax covenant is to expand the income tax base and, while maintaining its progressivity, reduce the number of rates to three - say, 20%, 25% and 30%. The expansion of the base must be carried out by refusing, for example, tax breaks for mortgage payments, which stimulate inflated investments in real estate and lead to crises. Finally, these benefits are more likely to be used by the rich than by the poor. And preferential treatment for income from investments in bonds of federal and regional authorities ultimately leads to inflated government spending. These measures would make the tax system more honest and the economy more mobile.

Becker passionately defended the idea of ​​decriminalizing marijuana use and generally argued that fighting drug addicts was pointless. Legalization of drug consumption and even distribution of drugs will give those who want to recover from addiction the opportunity to safely turn to doctors, and the state’s efforts will be focused on helping patients, not persecuting them. Currently, about 750,000 people a year are imprisoned for smoking marijuana in the United States. Introducing a high tax on marijuana users, as was done with alcohol after the repeal of Prohibition, would redirect funds from the fight against smokers to their treatment.

A complete lack of fear of going against generally accepted ideas is a characteristic feature of Becker's thinking. At the end of 2009, the US Treasury, congressmen, Obama and influential intellectuals, including Paul Krugman, increased pressure on China to strengthen the yuan. All these people were convinced that because of China's support for the undervaluation of the yuan, the United States was running a huge current account deficit, losing export earnings and losing jobs. This is not so, Becker argued . The strengthening of the yuan is more necessary for China than for the United States, for which its low value makes it relatively cheap to receive things made in China, including electronics. In exchange for goods, China receives a growing and threatening to depreciate mountain of dollars.

Another Becker paradox : the banking system is corrupt (violates ethical standards) more than other industries due to the fact that it is subject to government regulation more than others. Regulators are rarely honest, and the profits of banks that manage to influence the regulator to their advantage are higher than those of other industries. This stimulates corruption. The second factor is the trust of clients who transfer gigantic amounts of money to banks (in relation to their capital). In other industries, companies do not have such a favorable asset-to-capital ratio. A large amount of other people's money in management (in relation to one's own) increases the desire to risk it. Just like a roulette player who has just won a million will bet it more willingly than his own thousand.

In March, Becker wrote about Cuba. More precisely, the need to end the American trade embargo. Cuba no longer poses a threat to the United States, so there is no justification for the embargo, and there was never before: the island state, whose per capita GDP was once equal to Taiwan’s, suffered not due to a lack of export revenue, but due to the abandonment of private property and freedom of trade. This entry turned out to be the last.