Tuesday, August 30, 2005


Here’s a book to jolt the brain, Steven D Levitt uses the tools of the economist to wade through mountains of data on everyday life and the results often turn conventional wisdom on its head. Incentives, he believes are the cornerstone of modern life, they are the reason people cheat and they often clash with morality which “represents the way that people would like the world to work – whereas economics represents how it actually does work.”

The conventional wisdom is often wrong and dramatic effects ripple across distance. He uses the crime rate in the US as an example, there is compelling evidence that the drop in the crime rate in the United States from the early 1990’s was caused not by broken-window theory policing, a prosperous economy or the bursting of the “crack-bubble” but through a combination of factors not least being the legalisation of abortion. It’s a controversial thing to say, but the data suggests that crime dropped because those who might have become criminals were never born at all.

The media has made much of William Bratton the commissioner of police for New York City who introduced the broken-window theory, which meant prosecuting relatively trivial crimes so they don’t escalate. Since Bratton was only installed in 1994, when crime rates were already dropping, and because the crime rate dropped all over the country, innovative policing in New York had a marginal effect on the overall picture. Ditto with gun control. The collapse of the crack cocaine trade did have an impact, and the ageing of the population, but as abortion was legalized in 1973, 18 years later, crime began to drop because the potential pool of criminals had shrunk. As he says “when a woman does not want to have a child, she usually has a good reason”.

An analysis of incentives in the crack cocaine trade based on the work of sociologist Sudhir Venkatesh shows an industry that worked very much like McDonalds with franchises, foot soldiers and a central leadership called the board of directors. The collapse of the crack cocaine trade he puts down to the evaporation of profits as the price of cocaine fell leaving little incentive for foot soldiers to expose themselves to the risks.

He shows the similarities between the Ku Klux Klan and estate agents who use their informational advantage to serve their own agenda, and proves discrimination against Hispanics and the aged in TV quiz show The Weakest Link. He analyses the data of sumo wrestling competitions and deduces there has to be cheating. He relates an anecdote about an Israeli daycare center that levied a charge on parents who were late to pick up their children only to find the incidence of late collections rising instead of falling. He proves that a swimming pool is more dangerous than a gun, and separates out what aspects of parenting contribute to higher test scores from those that don’t. It’s not what you think.

Looking at human foibles through cold hearted numbers is sometimes uncomfortable, especially his analysis of the names parents give their children, but he makes a convincing case for a dose of reality and that’s probably what we need.

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