Friday, November 17, 2006

Review of Freakonomics

Though I have read numerous book reviews, having never written a book one, I do not have a good sense of how to compose them. I will remedy that deficiency with a review of Freakonomics by University of Chicago economist Steven D. Levitt and journalist Stephan J. Dubner. The topics discussed in their book are quite different from the intended focus of this blog, but I believe that the authors’ methods can and should inform everyone’s approach to complex issues, such as the environment. I am more ambiguous about the book’s noncommittal attitude, which grew in nearly inverse proportion to the societal importance of their findings, which I will address in more detail further along.

I came to Freakonomics on a whim. Levitt’s name has arisen more than a few times in magazines or over beer with economists, mostly in regard to his unorthodox research. I was intrigued and decided to read it for fun, hoping to learn, but not engage it critically. I succeeded on the former, but as the act of writing this review suggests, Freakonomics does not invite casual readership.

"The conventional view serves to protect us from the painful job of thinking." -- John Kenneth Galbraith

Freakonomics is more or less a compendium of Levitt’s research findings, made accessible by Dubner’s journalistic prose. Unlike most scholars, Levitt’s research does not revolve around a central theme. Rather, Levitt uses the toolkit of economics to empirically address whatever topic suits him, usually at the expense of conventional wisdom, invoking Galbraith’s sentiments above. Levitt’s findings include, but are not limited to:
  • Real estate agents sell your house for less than it is worth
  • Sumo wrestlers often throw matches
  • White-collar workers steal bagels
  • A candidate’s campaign money does not much increase his chances of winning an election
  • Chicago public school teachers cheat on their student’s standardized tests
  • Dealing crack is the worst job in America
  • Legalized abortion reduces crime
  • Swimming pools are more dangerous to children than are guns
  • Other than their genes and money, parents have little impact on their child’s performance in school
  • Stereotypically black names per se do not hurt an African-American’s chances at getting a job
As you might expect after reading this list, all but the most apathetic reader will encounter feelings ranging from bemusement, horror, and relief, often in fast succession. How do Levitt and colleagues arrive at all of these nonintuitive conclusions? A healthy skepticism of conventional wisdom and a mountain of data. For example, Levitt and sociologist Suhdir Vankatesh serendipitously attained the financial records from a Chicago gang who traded primarily in crack. Using this information, they were able to disprove the commonly held notion that most crack dealers are wealthy. In fact, dealing crack is much like running a fast food franchise: a few at the top make a lot, while most employees scrape by performing the dirtiest jobs with minimal opportunity for advancement. For particulars of other cases, I refer you to the book.

It would behoove environmentalists to take a similar approach. Take the example of energy. I have observed that the conventional wisdom among some environmentalists is that 1) renewable energy is good; 2) oil and nuclear energy are bad. Assuming the ultimate goal is to reduce carbon dioxide emissions without a concomitant increase in another equally unpleasant pollutant, do these statements hold? It is not a clear issue that can be settled with theory. Rather, it hinges on relative outputs of energy and pollution, which is an empirical question. It would not be optimal to cover the entire country in windmills in order to replace all current petroleum power plants. Likewise, it would hardly suffice to reduce carbon dioxide emissions if we were up to our ears in nuclear waste. My current opinion is that we will need to implement a combination of renewable and nuclear energy quite soon, but I will let the data (once I find them) be my guide.

Freakonomics “doesn’t traffic in morality. If morality represents an ideal world, then economics represent the actual world.”

As the quote above (taken from the Epilogue) suggests, Freakonomics, with a few exceptions*, remains amoral and apolitical. To put it another way, they espouse that the tools of economics are descriptive rather than normative, much like the natural sciences. For topics such as cheating in Sumo wrestling, I am more than happy to agree. What about the connection between legalized abortion and crime? His scientific detachment likely helped Levitt formulate the question without the burden of conflicting ideological objections. Rather than use the findings to inform the abortion debate, Levitt and Dubner retreat with theoretical qualifications. If you believe that embryos are equal in value to some, even small, fraction of a human life, then legalized abortion “kills” more individuals than it saves. If you value individual choice as paramount, then the extraneous affects of abortion are inconsequential. We are back to square one. Given some limitations inherent in their approach, I accept their amoral conclusion. But, for the sake of argument, if future economists could establish a value on an embryo or individual choice, a hedonic approach that is not uncommon, would they still be safely trafficking in description? The issue is important because when it comes to the environment, I am not content with description. For example, economics describes why marine fisheries are depleted unsustainably: lack of clearly defined property rights. That description must be followed up by a prescription: governments must clearly define property rights.

Thus, Levitt and Dubner seek an ultimately untenable position: using data to help untangle a dense thicket of conflicting wisdom, while resting their conclusions on a rarefied higher ground. Nonetheless, I greatly enjoyed the book and believe that we can all learn much from their approach. I should add one more thing. I did not actually “read” the book in a traditional sense, but rather listened to the audiobook while I entered my own mountain of data** in an Excel spreadsheet. It was a rather happy coincidence. Hopefully I can use mine as effectively as Levitt did his.

* For example, Levitt was instrumental in helping the Chicago public school system catch and fire a dozen teachers who were eregious cheaters.

** If you care, I am entering growth data on ecotypes of Arabidopsis thaliana.