“Freakonomics: A Rogue Economist

Explores the Hidden Side of

Everything,” by Steven D. Levitt

and Stephen J. Dubner

Reviewed by Henry Holtzman

            Steven Levitt may be the most unorthodox economist on the planet. He’s young (under 40), he’s brilliant (undergraduate work at Harvard, Ph.D. from MIT and a list of awards as long as your arm), and a full professor at the University of Chicago (a school with a reputation for brilliant oddballs who win Nobel prizes). What makes him so odd? In his own words:

            “I don’t know very much about the field of economics. I’m not good at math. I don’t know a lot of econometrics, and I also don’t know how to do theory. If you ask me about whether the stock market’s going up or down, if you ask me whether the economy’s going to grow or shrink, if you ask me whether deflation’s good or bad, if you ask me about taxes—I mean, it would be total fakery if I said I know anything about any of those things.”

            How can he call himself a brilliant economist? The truth is that he doesn’t call himself that, and many of his peers don’t think he is. He is certainly not a traditional practitioner of the “dismal science,” as economics is sometimes known. What he has is a razor-sharp ability to observe seemingly irrelevant combinations of data, a planet-wide curiosity about why such data almost always exists, and an annoying habit of having his intuitions being proved correct by research done by others who may have set out to prove him wrong. In other words, he’s a very refreshing character who is continually doing what Einstein once called “thought experiments.”

            Perhaps the best example of this is in the chapter titled, “Why do drug dealers live with their moms?” The chapter really deals with far more than its title indicates, and is probably the best in the book for highlighting Levitt’s philosophy that there is a hidden side to all compiled statistics, and especially to economic data. He cites two sides of a very similar coin:

“A recent audit discovered that the police in Atlanta were radically underreporting crime since the early 1990s. The practice apparently began when Atlanta was working to land the 1996 Olympics. The city needed to shed its violent image, and fast. So each year thousands of crime reports were either downgraded from violent or simply thrown away—there more than 22,000 missing police reports in 2002 alone. Police in other cities were spinning a different story. The sudden violent appearance of crack cocaine had police departments around the country scrapping for resources. They made it known it wasn’t a fair fight. The drug dealers were being armed with state-of-the-art weapons and a bottomless supply of cash. The emphasis on illicit cash proved to be a winning effort…. The media eagerly glommed on to this story, portraying crack cocaine dealing as one of the most profitable jobs in America.”

            A few years later, Levitt encountered Sudhir Venkatesh, who lived in the ghetto and did groundbreaking and highly dangerous research on gangs who sold drugs. Venkatesh was given several years worth of the books kept on drug deals by one of the gang members who were subsequently killed. Venkatesh shared them with Levitt who quickly determined several surprising facts. First, most of the gang members made less than they would have if they had been working at a fast-food restaurant. Second, mid-level gang members were making far less than six figures annually. Third, the three or four gang leaders were making well into six figures, about 13 times more than the mid-level gangsters, which was typical of corporate senior executives at the time. Finally, although three men of the 40-man gang made large incomes by anyone’s standards, the reason that two-thirds of them lived with their mothers was that they weren’t making enough money to live by themselves. And, of course, there was nearly a 20 percent “turnover” in personnel annually caused by killings, often by fellow gang members eager to move up the ladder. The myth of the wealthy gang member continues to exist, and police, fighting for strained resources do little to destroy the myth.

            Levitt’s book, like its primary author, is more than a little on the odd side and may even have its own hidden agenda. Despite this, it’s good reading, unusually informative, and introduces us to a mind that is unusually open and always inquiring. It’s easy to understand why it has been on several different bestseller lists for the past few months. The price tag of “Freakonomics” is well worth the price of admission into the less obvious side of nearly everything that costs money.