Gary Becker, RIP

One could certainly defend the claim that Gary Becker was the most important and influential living economist at the time of his death Saturday, and it would hardly be outrageous to say he was the most influential economist since Keynes. He was pathbreaking on important dimensions of economics conventionally defined, such as human capital, and he was the discipline's great imperialist, seeking to extend the methodology of microeconomic theory to topics generally claimed by other social sciences: discrimination, marriage, and fertility, to name three. I didn't care much for his politics, and his insistence that rational choice models could account for every aspect of human behavior was narrow, if not the dead end that some behavioralists seem to think it is. The attempted colonization of sociology and political science by economics will ultimately, I think, prove to be as productive as it is unsuccessful. In the shorter run, Becker's brilliance and bull-in-the-china-shop confidence in the superiority of his own methods contributed to the attitude of condescension if not outright contempt economists often exhibit toward the other social disciplines, an attitude that has probably set back the cause of developing a unified science of human behavior by a generation or more.

Rational choice theory a la Becker does not inevitably lead to conservative or libertarian policy conclusions, Becker's personal politics aside. There is ample room in the real world and in rational choice theory for market failures and a concern for distribution, both of which can justify activist government intervention in markets. And Becker was a leading figure in extending rational choice models to other-regarding (in his case, specifically, altruistic) motives. Altruism, perhaps paradoxically, is itself a cause of market failure.

My favorite Becker paper is number one on Tyler Cowen's list of neglected Becker papers: "Irrational Behavior and Economic Theory" (JPE, 1962). In it Becker shows that some fairly strong behavioral predictions of rational choice theory would also be exhibited on average by individuals who behaved in an extremely irrational manner--namely, people who made completely random choices. For instance, standard micro theory predicts that individuals will reduce their purchases of a good when its price increases, even if they are fully compensated for the loss of purchasing power caused by the price hike. This substitution effect follows from rational economizing behavior. But Becker shows, with an elegant diagrammatic argument, that even random consumers, when compensated, will also cut their expected (average) purchases, because of the pivot in the set of affordable bundles of goods. Here it is, his Figure 2; I leave it as an exercise for you to back out how the points p and p' clinch his argument.

This is a great paper for undergrad intermediate micro students, because it can be used to illustrate a couple of important points: (1) Rational choice may serve as a model--or perhaps better, a metaphor--for predicting behavior arising from a range of behaviors, including non-rational behavior; (2) Much of the "action" in the rational consumer model is a result of shifts in the budget constraint, not the specific rules that govern choice along that constraint. But Becker took it a little further, writing that "households may be irrational and yet markets quite rational" (p. 8). One must be careful not to read too much into this claim. If markets being "quite rational" means that in the aggregate, the compensated demand curve will slope down, as it would for an individual rational consumer, yes. But one might also take "quite rational" to be a statement about the efficiency of the resulting market allocation from a normative perspective. And here the rationality or irrationality of the agents makes all the difference. The Pareto efficiency of market allocations requires optimizing (rational) individual behavior--and selfish behavior to boot: no rational economic man (sic), no market efficiency.

Any trained economist will recognize that I liked my Becker best when he was at his least Becker-esque. But he was a giant of our field whatever the shape of your preferences.