Book Reviews Freakonomics by Steven Levitt and Stephen Dubner

Steven Levitt is an economics professor at the University of Chicago. Levitt has been declared brilliant by some; he definitely has the credentials to be deemed so. He was an undergraduate at Harvard, received his PhD at MIT, and has received numerous awards for his work. Levitt is not the typical economics professor; he has little interest in how monetary policy affects stock prices and the economy. He instead looks at puzzles that riddle our everyday life and explains them by sorting through mountains of data. Some of his assertions may be offensive to some people, but he tries to look at the data objectively and honestly report his findings.

An example of Levitt’s methodology is how he relates the legalization of abortion in the 1970s to a decrease in crime rate in the mid 1990s (I said some of his findings may be offensive to some). In the early 1990s crime was getting out of control in the United States. Murders and violence were going through the roof. Analysts and criminologists forecasted crime to get even worse in the coming years and would throw the country into chaos. To their surprise, crime dropped drastically all of the sudden in the mid 1990s. The teenage murder rate fell by 50%, the overall murder rate was the lowest in 35 years. Crime rates including assault and car theft also fell.

Criminologists tried to explain the phenomena by attributing the decrease in crime to clever police and gun control, but Levitt argues the legalization of abortion had a greater impact. He noted statistics showing that children born into an adverse family environment were more likely to become criminals. The women that had abortions after Roe v. Wade were typically poor, unmarried, teenage mothers who would have children that would be in an adverse situation. Levitt may seem radical in his assertions, but he brings up an interesting analysis.

Levitt uses the same procedures to explain several more phenomena and relationships that most people do not think of. He found that teachers will actually fill in answers on standardized tests in hopes that increased test scores will lead to an increase in salary. The book also indicates that Sumo wrestlers have a system of trading victories in matches in order to keep everyone’s ranking high. One chapter in Freakonomics dissects the workings of cocaine dealing gangs. He broke the myth that most drug dealers are rich, they actually work like most corporations. The gangs have a board of directors, regional managers, and “foot soldiers” who do the actual dealing. The members at the top make a lot of money, but after analyzing the financial statements of a gang (yes a gang had detailed financial statements of all expenses and profits), the foot soldiers only made about $7 an hour.

This book brings up a lot of interesting topics most people never think of. I enjoyed reading it, but I was careful to take everything at face value. One chapter is titled “How Real Estate Agents are Like the Klu Klux Klan”. I think he is a little extreme in this chapter, but he found that real estate agents sell their own home for an average of 10% more than homes they sell for their clients, and keep their house on the market for an average of 10 days longer. He attributes the difference to the lack of incentive to go the extra mile of selling a clients home for $10,000 or $20,000 to receive only a 3% commission on it. Even though I don’t agree with everything Levitt says in his book, it is an interesting read and I recommend it to anyone with an open mind.