It was Thomas Carlyle who famously labeled economics "the dismal science," and in the popular mind it still is—a field for people who enjoy discussing interest rates and the Federal Reserve, or who harbor a misty memory of the Laffer curve from Econ 101.
Economists do study all that, of course, and a great many other things you might not guess if regression analysis isn't your forte: subjects as varied as war, religion, law, sports, health, politics and education. But ask them what people think economics is about, and the answers are pretty uniform.
"The Fed," one economist told me. "Investments. Stocks. Everyone wants a stock tip." Another ticked them off on her fingers: "Money, investment banking, hedge funds." An economics professor agreed, shaking his head. "Students tend to think I can help them make money in the stock market. I say I can tell them a few dumb things not to do. But if I had a crystal ball on the stock market, don't you think I'd use it?"
In the same vein, Wassily Leontief, winner of the 1973 Nobel prize in economics, once complained to Scientific American editor Dennis Flanagan that everyone expects people like him to solve the world's economic problems. "You must understand," he said, "economists do not run economies!"
Freaky (or not)
Nor do they merely tally unemployment figures or interest rates, and if that perception is changing, Freakonomics may have helped. The 2005 blockbuster by University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner, subtitled "A Rogue Economist Explores the Hidden Side of Everything," sold millions of copies, rubbing elbows with Harry Potter on the bestseller charts. Briskly written and full of startling juxtapositions (chapters are headed "What Do Sumo Wrestlers and Schoolteachers Have in Common?" and "How Is the Ku Klux Klan Like a Group of Real Estate Agents?"), Freakonomics brought a complex discipline to mainstream attention in a way few books ever have.
For insiders, though, the book's title is ironic, says Paul Rubin, an economics professor emeritus and ex-president of the Southern Economic Association. "My first thought," he remembers, "was the title's wrong. There's nothing freaky about any of this." While Rubin welcomes the attention to his field, he maintains it would be a mistake to assume from Levitt's title and tone that his topics stand outside "normal" economics. "It actually introduced a lot of people to some of economists' standard subjects," he says. "They just didn't know they were standard subjects."
Examining assumptions is part of every scholar's job, and in economics just as elsewhere the results can turn conventional wisdom on its head. Rubin cites a famous study by Sam Peltzman, 30 years before Freakonomics, indicating car safety devices like seatbelts and airbags can actually increase the risk of injury by offering the perception of safety—thus inducing risky behavior. The same phenomenon has been documented for four-wheel drive vehicles, whose drivers are nearly four times as likely to talk on the phone.
Hugo Mialon's research interests similarly steer down different roads than a polite cocktail party question might presume. ("And what do you do?") He's studied gun laws, violence against women, and in a collaboration with colleague Andrew Francis, the way rising societal tolerance for homosexuality brought declining HIV rates, a result that surprised them both. "It's not at all what we expected to find," says Mialon. Every standard-deviation rise in tolerance (measured by attitude surveys) lowered the HIV rate by some 6000 cases annually, roughly 13 percent. They theorize this is due to formerly closeted (safe) gays entering the data pool, as well as a decrease in underground (unsafe) practices—what economists refer to as both extensive and intensive margin effects.
"It was surprising," Francis says, "but it's a nice message: tolerance saves lives."
Francis's interests are similarly varied, including the economics of marriage and human rights, and he considers this kind of diversity one of the advantages of his discipline. "I decided early on that with economics I could study anything, but more rigorously than in some other fields." Some call this application of economics to seemingly off-the-wall topics "economic imperialism," suggesting it encroaches on intellectual territory that properly belongs to sociology, political science, anthropology and a half-dozen other disciplines.
Tilman Klumpp of the University of Alberta has heard this before. His answer:
Economics is defined less by a set of topics than by a methodology. We assume human beings are fairly selfish and fairly rational and follow this premise to predictions and conclusions about their behavior. Every economic outcome is the result of some human being making a decision. We're not studying natural forces, or animals.
Humans are... what again?
Is this an advantage, given the complexity of human beings? At any rate is Homo sapiens—or Homo economicus, a term that's been around for a century—really rational? Everyone can think of examples to the contrary. A student of history, or a cynic, could multiply them endlessly.
Rational, though, for an economist, means seeking outcomes—goods and services—in one's interest at the least possible cost. ("Rational choice theory" also bulks large in modern sociology and political science.) Economists don't automatically assume the goals are in some larger sense ethical or sensible, or that everyone acts with perfect knowledge of the consequences. Life would be very different if that were true. No, economists study, in Lionel Robbins's classic definition, "human behavior as a relationship between ends and scarce means which have alternative uses." In other words, they study choices.
"It's a very humanistic idea," Klumpp says, "an Enlightenment idea, that humans make rational, reasonable decisions. And there's no reason it can't be applied to basketball, or elections, or crime." He's done just that, publishing studies of both upsets in the NCAA basketball tournament and spending patterns in presidential primaries.
Is a sports study inherently trivial and a political one serious? Not at all, says Klumpp. For one thing, the NCAA study let him track teams' "hoarding" and "spending" of their star players' efforts—measured by time on the court—and this, he says, "gives us confidence in the model. Then we can apply exactly the same theory to primary elections." It turns out that in both settings, a winner-take-all scenario (single elimination tournaments, GOP primaries) means that big early spending—starters' playing time in early rounds, campaign dollars in New Hampshire—most often leads to success. Allocating effort more evenly, as in proportional Democratic primaries or in the NCAA back when teams had less rest between rounds, typically brings upsets.
Markets and magnets
We live in an information age, and economics professor Maria Arbatskaya looks at the way information can affect markets—a word that conjures stocks and bonds but can just as easily refer to search engines or parking lots. She has studied, for example, the competition for a parking spot under congested conditions at a busy university. Any particular university? She laughs and says that while Emory, where she works, has its parking challenges, Indiana University, where she earned her doctorate, is "much worse." She calls the resulting strategic behavior "survival of the earliest" and compares it to an auction: "Your bid is your time. How early do you arrive? How efficiently is information spread among the bidders?"
A parking deck that's always partly empty might seem wasteful on its face, but it may in fact be more efficient, Arbatskaya says. It's another of the counterintuitive turns modern economics seems good at. It can be a much bigger waste, she explains, if scarcity generates a tire-squealing competition costing individuals and organizations exorbitantly in time and manipulated schedules.
Time is still money, at least. That hasn't changed.
Much else has, though, in a discipline most people credit Adam Smith with originating in The Wealth of Nations (1776). Basketball and parking garages aren't the sorts of things Smith thought about. But Gary Becker, at the University of Chicago, did. Exactly two centuries after Smith's seminal work, Becker published The Economic Approach to Human Behavior and ushered in a new era in economics, developing his earlier notion of "human capital" in analyses of such disparate—and frequently controversial—topics as family life, marijuana legalization, and the market for human organs. "He was one of the early economists to stretch the discipline," Paul Rubin says of Becker, who won the Nobel Prize in 1992.
This disciplinary outreach is the way things are done now in economics, and it makes for lively times in classrooms and institutes, whatever those uninformed partygoers might believe. "Economics makes a difference," Andrew Francis says. "In society, policies, things that matter. I can't imagine anything more important." Better yet, says Hugo Mialon, "We have a lot of fun in economics. We study human behavior—what could be more interesting than that?"
