Home > Uncategorized > Gary Becker — making nonsense out of economic science

Gary Becker — making nonsense out of economic science

from Lars Syll

1399387137298The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment …

Alex Tabarrok

The alarm that sets off in my brain when reading Becker is that ‘rational actor models,’ rather than being helpful for understanding real-world economic issues, sounds more like an ill-advised plaidoyerfor voluntarily taking on a methodological straight-jacket of unsubstantiated and known to be false assumptions. 

straight jacketOne could indeed wonder why on earth anyone should be interested in applying that kind of theory to real-world situations. Like so many other mainstream mathematical models taught to economics students today, it has next to nothing to do with the real world.

From a methodological point of view, one can, of course, also wonder, how we are supposed to evaluate tests of theories and models building on known to be false assumptions. What is the point of such tests? What can those tests possibly teach us? From falsehoods, anything logically follows.

Modern expected utility theory is a good example of this. Leaving the specification of preferences without almost any restrictions whatsoever, every imaginable evidence is safely made compatible with the all-embracing ‘theory’ — and theory without informational content never risks being empirically tested and found falsified. Used in mainstream economics ‘thought experimental’ activities, it may, of course, be very ‘handy’, but totally void of any empirical value.

Utility theory has like so many other economic theories morphed into an empty theory of everything. And a theory of everything explains nothing — just as Gary Becker’s ‘economics of everything’ it only makes nonsense out of economic science.

Using false assumptions, mainstream modellers can derive whatever conclusions they want. Wanting to show that ‘all economists consider austerity to be the right policy,’ just e.g. assume ‘all economists are from Chicago’ and ‘all economists from Chicago consider austerity to be the right policy.’  The conclusions follow by deduction — but is of course factually totally wrong. Models and theories building on that kind of reasoning is nothing but a pointless waste of time — of which Gary Becker’s ‘rational actor model’ is a superb example.

  1. Econoclast
    February 3, 2019 at 4:00 pm

    It is almost too much to begin my day with something about Gary Becker, the most famous expression of Oscar Wilde’s famous quote: “A cynic is one who knows the price of everything and the value of nothing.”

    • Helen Sakho
      February 3, 2019 at 10:40 pm

      With respect, I must disagree and I wish I did not stand alone on this. I think the reference above should be to fashion modelling! And quite honestly, the level of even this blog turning into something of a Male-dominated fantasy world described by a progressive colleague (thank you) as a “dating agency” (please refer to recent comments posted which confirm my worst fears about women economists being marginalised, intimidated and horrified by personal comments about them, in this case, myself, which I shall not dignify with specific responses. I do not wish to see similar comments ever again.)
      Let us get serious about formulating models of some genuine value that relate to the unprecedented phenomena that surround us all. And take responsibility for a new agenda for discourses that add something new to our analyses. Let us humanise our fields of inquiry away from trivia, and address some real issues: polarisation and alienation of all creatures living on the earth from each other and their fellow human beings, poverty, war and conflict, human trafficking, slave trade, increasing hierarchy of vulnerability (migrants in particular), increasingly humanitarian disasters everywhere, climatic catastrophes, collapse of accountability, etc. Amen.

      • EDWARD K ROSS
        February 4, 2019 at 9:01 pm

        Dear Helen, you do not stand alone, because even though I am a mere male and not an economist I respect your honesty and concern for the disadvantaged regardless of their sex background or religion. Therefore, on their behalf please do not give up, the world needs people like you.

        In response to previous blogs I suggested the way to reform economics was to begin with Bernard Gurrien;s identifying the problem first then apply Tony Lawson;s critical realism as well as his call for a new ontology about the nature of humans. What I neglected on that post was that without ethics and respect it is impossible to have a productive conversation to solve a problem ,especially in a problem such as economics.

        Sorry all for the rambling but that is the way I see it as a non academic. Ted

  2. February 4, 2019 at 1:42 am

    I trust Helen the offending remarks have been deleted. I have always enjoyed your comments. Please do keep adding your wisdom herein.

  3. February 4, 2019 at 1:43 am

    Econoclast, I am a fan of your posts. Thank you for sharing them.

  4. Helen Sakho
    February 5, 2019 at 1:33 am

    Thank you both for the positive back up. Unfortunately the comments have not been deleted. I may or may not continue. I am sure all colleagues here are wise and gracious enough to make valuable contributions, as and when they wish. But thanks anyway.

  5. February 11, 2019 at 6:50 am

    Becker is well known and won a “Nobel” prize for extending economic analysis to nonmarket behavior. The most notable point about Becker’s efforts, and one not mentioned in the document awarding his prize, these efforts mostly failed. In crime and criminology Becker’s theories failed completely. No one who works in criminology or within criminal justice policy or policing puts any credence in Becker’s “rational choice” theory. And psychologists merely chuckle when the theory is mentioned.

    Becker acknowledges that many people operate under a high moral and ethical constraint but nonetheless concludes that criminals are rational, committing crimes only where the benefits of their crime outweigh the cost, such as the probability of apprehension and conviction, severity of punishment, as well as their current set of opportunities. In terms of public policy, since the cost of increasing the fine is marginal to that of the cost of increasing surveillance, Becker concludes that the best policy is to maximize the fine and minimize surveillance. Consequently, crime prevention/reduction measures can be devised to increase the effort required to commit the crime, such as target hardening. Becker and other rational choice scholars also suggest increasing risk and likelihood of being caught, through added surveillance, law enforcement presence, added street lighting, etc. are effective in reducing crime.

    Unlike some rational choice thinkers, Becker’s theory acknowledges that a society cannot eliminate crime below a certain level. For example, if 25% of a supermarket’s products were stolen, reducing this rate to 15% is generally not difficult, a little more difficult but certainly possible to reduce the rate to 5%, but experience reveals that reducing the rate below 3% is nearly impossible. Becker notes the cost to reach a of rate of 3% or less would outweigh the supermarket’s benefits. In terms of crime, the goals of utilitarianism and classical liberalism must be modest to be practically applicable. Such rational choice theories as Becker’s, linked to neoliberalism, are the basics of crime prevention through environmental design and support Mike Sutton’s Market Reduction Approach to theft; a “complete” toolkit to deal with “crime facilitators” by dealing with purchasers of stolen goods upon which thieves depend.

    With Becker hodge-podgery is raised to a new level. I wonder what the Nobel decision would have been had some of Becker’s many critics had a vote.

  6. February 11, 2019 at 10:41 am

    “Using false assumptions, mainstream modellers can derive whatever conclusions they want. [Right now they are w]anting to show that ‘all economists consider austerity to be the right policy,’ … “. Unfortunately.

    Lars, you really do not bring out the fact that empiricism operates on at least two levels, and in Critical Realist thinking three or four. Using the metaphor of ‘mainstream’ as an example, one can see and accept the existence of streams, but only of one looks in one can one see what is going on in it. Only if one observes it over a long period of time can one see its banks being eroded, and only by making a journey in that time can one see what effects the stream is creating downstream. Of the likes of Becker, then, “By their fruits we shall know them”.

    Ken, your debunking of Becker was well done. I enjoyed that!

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