Freakonomics: A new Practical Approach to Economics

Freakonomics

Freakonomics a new dimensional approach to economic issues, that establishes unconventional realities to economics different from the traditional approach. Freakonomics takes a new way in looking at things – the principal idea is that economics exist as a tool to study society and not mere utilization of wealth. The message, however, is not in the details, but in the overarching picture and a new dimension to economics.

Freakonomics establishes this unconventional premise: If morality represents the way that people would like the world to work, then economics represents how it actually does work. To them, economics is more, the study of incentives how people get what they want, or need, especially when other people want or need the same thing.

Accordingly, “Economics is above all a science of measurement. It comprises an extraordinarily powerful and flexible set of tools that can reliably assess a thicket of information to determine the effect of any one factor, or even the effect.”

Freakonomics tends to address some questions that bordered on the society and have the potential to overturn the “conventional wisdom.” What is the cause of the rampant corruption in professional sumo wrestling? “Where did all the criminals go?” Morality in legalizing abortion in America and the social-economic impact: poverty, single parent, child abuse, the real impact of parenting on a child’s life outcomes.

Which is more dangerous, a gun or a swimming pool? Why do drug dealers still live with their moms? The working of the inner crack gang. The truth about real-estate agents. The myths of campaign finance. The telltale marks of a cheating schoolteacher. The secrets of the Ku Klux Klan.

Take for instance the sudden crime drop in America as at 1990’s took everyone by surprise. Plenty of plausible-sounding hypotheses were put forward to explain it. But when Levitt turned an economist’s eye to the data, he found that most of the supposed causes-innovative policing strategies, stricter gun control, a strong economy, the aging of the population had a negligible effect.

He further discovered that factors like increased imprisonment seemed to account for a third of the crime drop; the crash of the crack market (you remember the crack market) for 15 percent; the hiring of more cops for another 10 percent.

He went ahead to argue that a child’s test scores are mostly correlated with highly educated parents, a high socioeconomic status, English spoken at home, parents who are involved in the PTA, and a house full of books.

On the other hands, factors such as a family being “intact,” having parents who read to the child nearly every day or regularly take him or her to museums, having a mother stay at home until the child reaches kindergarten, or even frequent television viewing have been shown to have no impact on a child’s eventual test scores in the classroom.

Levitt and his collaborator, John Donohue of Stanford Law School, showed unsettling originality. They argued that since abortion was legalized in 1973, around a million and a half women a year have ended unwanted pregnancies. Many of the women taking advantage of Roe v. Wade have been unmarried, poor and in their teens.

Accordingly, childhood poverty and a single-parent household are two of the strongest predictors of future criminality. As it happens, the crime rate started to drop in the early 1990’s, just as children in the first post-Roe cohort were hitting their late teens, the criminal’s prime. Hence Levitt and Donohue’s audacious claim: the crime drop was, in economists’ parlance, an “unintended benefit” of legalized abortion.

Levitt however, went further to tease out subtle correlations that give the abortion-crime link more probable. (States like New York and California that legalized abortion before Roe v. Wade, such as, showed the earliest drops in crime.)  

Levitt trying to explain the vanquish of the society and individual climbing the top ladder shared the story of a graduate student, Sudhir Venkatesh. Sudhir spent a scary period all but living with a gang, manage the sales figures, wages, dues, even death benefits paid to families of murdered members over a four-year period, at the peak of the crack boom.

Levitt and Venkatesh analyze the gang crack and discover that, the leader of the gang did fairly well, making around $100,000 a year (tax free). But the gang’s “foot soldiers,” who sold the crack on the streets, cleared only $3.30 an hour – less than the minimum wage.

For this pittance they ran a one-in-four risk of being killed during the period in question, worse than the odds for a Texas death-row inmate. The question: Why would anyone take such a job? Like other “glamor professions,” the crack trade is best viewed as a tournament, Levitt observes.

In all Freakonomics is a groundbreaking collaboration between Levitt and Stephen J. Dubner, an award-winning author and journalist. The book of 200plus pages and additional bonus material has really touched lives with more than five million on sales since it was published in 2005.

The core ideology: Incentives are the cornerstone of modern world, acclaimed conventional wisdom is often wrong, experts in all fields often use their information advantage for their own agenda and dramatic effects often have distant, even subtle, causes.

About the Authors

Steven D. Levitt: A professor of economics at the University of Chicago, where he directs the Becker Center on Chicago Price Theory. Levitt has many academic excellence to his record including John Bates Clark Medal winner in 2003. The award recognizes the most outstanding economist in America under the age of 40. In 2006, he was named one of Time magazine’s 100 People Who Shape Our World. Today Levitt is ranked among the ten most influential economics. Levitt received his B.A. from Harvard University in 1989, his Ph.D. from M.I.T. in 1994, and has taught at Chicago since 1997. In addition to his academic and Freakonomics pursuits, he is a founding partner of TGG Group consulting firm. He lives in Chicago with his wife Jeannette and their four children.

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Stephen, J Dubner like Levitt is an award-winning author, journalist, and TV and radio presenter. Dubner has authored quite number of books, including, Freakonomics, Super Freakonomics, Think like a Freak and When to Rob a Bank.

Other books to his credit includes; Turbulent Souls (Choosing My Religion), Confessions of a Hero-Worshiper. His journalism has been published in The New York Times, The New Yorker, and Time, and has been anthologized in The Best American Sports Writing, The Best American Crime Writing, and elsewhere.

He has taught English at Columbia University and, as a writer, was first published at the age of 11, in Highlights for Children. Dubner is also the host of the Freakonomics Radio podcast, which gets 5 million downloads a month. He lives in New York with his wife, the documentary photographer Ellen Binder, and their children.

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