Cracking economics

Steven Levitt, the man who attributed falling crime rates to the legalisation of abortion, has written an instructive and entertaining book, on such matters as the economics of crack-dealing street gangs, says Jim Holt

A few years ago, a young economist named Steven D Levitt became briefly notorious for collaborating on a research paper that contained a strikingly novel thesis: abortion curbs crime. What Levitt and his co-author claimed, specifically, was that the sharp drop in the United States crime rate during the 1990s – commonly attributed to factors like better policing, stiffer gun laws and an aging population – was in fact largely due to the Roe vs Wade decision two decades earlier. The logic was simple: unwanted children are more likely to grow up to become criminals; legalised abortion leads to less unwantedness; therefore, abortion leads to less crime.

This conclusion managed to offend nearly everyone. Conservatives were outraged that abortion was seemingly being promoted as a solution to crime. Liberals detected a whiff of racist eugenics. Besides, what business did this callow economist have trespassing on the territory of the criminologist? Economics is supposed to be about price elasticities and interest rates and diminishing marginal utilities, not abortion and crime. That is what makes it so useful to undergraduates seeking relief from insomnia.

Levitt has strayed far from the customary paddock of the dismal science in search of interesting problems. How do parents of different races and classes choose names for their children? What sort of contestants on the TV show The Weakest Link are most likely to be discriminated against by their fellow contestants? If crack dealers make so much money, why do they live with their moms? Such everyday riddles are fair game for the economist, Levitt contends, because their solution involves understanding how people react to incentives. His peers seem to agree. In 2003, Levitt was awarded the John Bates Clark Medal, bestowed every two years on the most accomplished American economist under 40.

Freakonomics, written with the help of the journalist Stephen J. Dubner, is an odd book. For one thing, it proudly boasts that it has no unifying theme. For another, each chapter begins with a quotation from the under-author (Dubner) telling us how great the over-author (Levitt) is: a "master of the simple, clever solution," a "noetic butterfly" (!), "genial, low-key and unflappable," etc. Yet a little self-indulgence can be tolerated in a book as instructive and entertaining as this one. (Freakonomics grew out of a profile Dubner wrote about Levitt in The New York Times Magazine, where I am also a contributor, but we've never met.)

The trivia alone is worth the cover price. Did you know that Ku Klux Klan members affixed a "kl" to many words (thus two Klansmen would hold a "klonversation" in the local "klavern") or that the secret Klan handshake was "a left-handed, limp-wristed fish wiggle"? In the mid-1940s, a Klan infiltrator began to feed such intelligence to writers for the radio show The Adventures of Superman, who incorporated it into the plotline, thereby making the Klan look ridiculous in the eyes of the public and driving down its membership. Levitt uses the rise and fall of the KKK to illustrate the power of hoarded information. He finds a parallel in the world of real estate, where brokers employ code words in advertisements to let potential buyers know that an apartment can be bought for less than its listing price. "Spacious" and "great neighborhood" are associated with a low closing price, whereas "state of the art" and "maple" are associated with a high price.

Sometimes Levitt seeks out his raw material, and sometimes -- as with a stack of spiral notebooks kept by a Chicago crack gang -- it falls into his lap. These notebooks, obtained by a graduate student, Sudhir Venkatesh, who spent a scary period all but living with the gang, contained 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. By analysing them, Levitt and Venkatesh were able to work out the organisation of the crack business, which turned out to be rather like that of McDonald's. 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. Why would anyone take such a job? Like other "glamour professions," the crack trade is best viewed as a tournament, Levitt observes. You have to start out at the bottom to have a shot at the top job.

Levitt is happiest grappling with questions that have the potential to overturn the "conventional wisdom." "Where did all the criminals go?" proved to be the perfect instance of such a question. The sudden and precipitous crime drop in the 1990s 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. Others could be shown to play a limited role: increased imprisonment seemed to account for a third of the crime drop; the crash of the crack market for 15 per cent; the hiring of more cops for another 10 per cent.

And the balance? Here is where Levitt and his collaborator, John Donohue of Stanford Law School, showed unsettling originality. 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. 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 legalised abortion.

A controlled experiment to test the truth of this theory is obviously out of the question. In Freakonomics, however, Levitt does the next best thing, teasing out subtle correlations that render the abortion-crime link more probable. (States like New York and California that legalized abortion before Roe v. Wade, for example, showed the earliest drops in crime.) In the social sciences, that is about as close as you can get to demonstrating causation. To insulate himself from the charge that he is advocating abortion as the cure for crime, Levitt does a little cost-benefit calculation. Suppose, for the sake of argument, we say a foetus is worth one one-hundredth of a person. Even then, he shows, the number of averted murders would not justify the number of abortions. This is clever but disingenuous. Anti-abortion groups do not hesitate to cite undesirable consequences of abortion. Why shouldn't abortion rights advocates get to cite its desirable consequences, like a drop in crime resulting from fewer unwanted children?

Economists can seem a little arrogant at times. They have a set of techniques and habits of thought that they regard as more "rigorous" than those of other social scientists. When they are successful -- one thinks of Amartya Sen's important work on the causes of famines, or Gary Becker's theory of marriage and rational behavior -- the result gets called economics. It might appear presumptuous of Steven Levitt to see himself as an all-purpose intellectual detective, fit to take on whatever puzzle of human behavior grabs his fancy. But on the evidence of Freakonomics, the presumption is earned.

© New York Times

Jim Holt reviews books for The New Yorker and The New York Review of Books, among other publications