Stephen D. Levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (New York: William Morrow, 2005). Available only in hardcover (for now) for $25.95.
He's not exactly "rogue" (he won the John Clark Bates Medal, awarded every two years to the best American economist under forty), but co-author Steven D. Levitt is definitely not your run-of-the-mill economist. He does not, for example, dabble in issues of supply and demand. "I'm not good at math, I don't know a lot of econometrics, and I also don't know how to do theory. If you ask me about whether the stock market's going up or down, if you ask me whether the economy's going to grow or shrink, if you ask me whether deflation's good or bad, if you ask me about taxes -- I mean, it would be total fakery if I said I knew anything about any of those things," Levitt says in the book's introduction. Levitt and co-author Stephen J. Dubner instead use economics as a tool. It might be better to say that they use the statistical methodologies of economics to analyze data and come to conclusions about those data.
True to form, Levitt doesn't talk about banking or finanace or national income accounting. He talks about things that might be interesting to the average person without a Ph.D. Do teachers cheat? Are human beings really thieves at heart? How are real estate agents like the Ku Klux Klan? What caused the dramatic drop in crime during the 1990s? These are fascinating questions, and above all, Levitt doesn't enter data analysis with an agenda, political or otherwise. He merely wants to know what the data show about a particular issue.
In each chapter, Levitt and Dubner deal with a different issue and demonstrate how analyses of particular data sets speak to those issues. How are realtors like the Klan? It turns out that both use a lack of information to their advantage. The authors begin that chapter by talking about how information asymmetry -- in which one side has more information than the other side -- is used by a variety of people, from stock brokers to realtors to insurance salesmen and car salesmen. They're counting on the fact that you, as a consumer, don't know much about the field of realty or insurance. The authors then parallel this information asymmetry with the Ku Klux Klan, the white supremacist secret society founded in the aftermath of the Civil War. The Klan, say Levitt and Dubner, remained enticing to people because of its secrecy. By the 1950s, the Klan was no longer committing many violent acts. They rested on the threat of violent acts and existed mostly as a place for middle-class white men to come to gripe about how blacks, Jews, and Catholics were destroying the world. The Klan's secrecy was destroyed when an activist named Stetson Kennedy infiltrated the Klan and told the producers of the Adventures of Superman radio show all about the Klan's structure, secret passwords, and secret bible. When Superman fought Klansmen every week, this information became well-known, and new Klan membership dropped. Why? Because the society was no longer secret anymore. The allure was gone.
Levitt, the economist, provides analyses backed up by data. Dubner, the journalist, puts all of this information in a fun and easy-to-read format. Readers who have no background in economics or statistics will find themselves at ease. Whenever a concept from economics or statistics is introduced, it is explained in such a way that the lay person can understand what's going on when Levitt uses regression analysis to see what external influences most affect a child's intellectual growth (children with well-educated parents tend to have high test scores, whereas the amount of time a child spends watching television has no relationship to his or her test scores).
Most impressive about the book is that Levitt is honest. He has no axe to grind. When presented with an issue, such as whether or not sumo wrestling is rigged, he delves into the data to come up with an answer. He lets the data speak for themselves (and, thankfully, he uses the word "data" in the plural, which is as it should be) rather than trying to make the data conform to a pre-existing conclusion. Levitt also takes "conventional wisdom" to task. Conventional wisdom, he says, is often wrong. Even the person who invented the term "conventional wisdom," economist John Kenneth Galbraith, didn't mean for it to be used in a positive light. "We associate truth with convenience, with what most closely accords with self-interest and personal well-being or promises best to avoid awkward effort or unwelcome dislocation of life. We also find highly acceptable what contributes most to self-esteem," wrote Galbraith. Levitt sums up Galbraith's view of conventional wisdom as that which is "simple, convenient, comfortable, and comforting -- through not necessarily true." Contrast this with the methodology of noted conservative anti-environmental scientist Dixy Lee Ray, who places "common sense" and "conventional wisdom" higher than scientific analysis (probably because scientific analysis would prove her assertions wrong).
"Morality, it could be argued, represents the way that people would like the world to work -- whereas economics represents how it actually does work," the authors write. This statement should be engraved into the forehead of every United States senator and representative. All too often, our leaders become confused between morality and economics, between the ideal and the actual. Sure, it would be nice to have a world in which teenagers don't have sex before marriage, but that just isn't going to happen, and pretending that it doesn't happen is either ignorant or a sign of mental illness. Morality becomes psychotic when ideals are enacted as national policies even when those ideals are proven to be untrue here in the real world. Not liking the idea of premarital sex is one thing, but creating policy around it is ludicrous. Every study shows that abstinence-only education is, at best, just as effective as Grandma's down-home sex education in preventing STDs and teenage pregnancy. At worst, abstinence-only education does a much poorer job. People who would like the world to work in a way that is contrary to the world's actual operation would do well to read Freakonomics. They might learn that data analysis is much more effective in getting things done than having faith.
In this book, Levitt and Dubner get to the hidden side of only a few things. I would enjoy reading a sequel in which they get a little closer to exploring everything.
