Insights from a rogue economist

Freakonomics author Steve Levitt talked about what storytelling has to do with economics, how he chooses which questions to answer, and why he calls his own best-seller "the 'Seinfeld' of books" when he was at SMU on March 27, 2007, as part of the Tate Distinguished Lecture Series.

Freakonomics author Steve Levitt at SMU
Steve Levitt

An innovative economist whose application of standard theory to unconventional topics reveals startling insights into the modern world, Levitt has researched and written on subjects as diverse as the economics of drug dealing, the impact of legalized abortion on crime and the socioeconomic patterns of naming children. TIME magazine included him in its 2006 list of "100 people who shape our world." In 2003 he received the American Economic Association's prestigious John Bates Clark Medal, awarded annually to the nation's most promising economist under the age of 40.

Following are some of the questions posed to Levitt and his answers during the Tate's Turner Construction Student Forum with high school and college students:

So much of your work asks questions that no one has asked before. What do you think of "regular" economics?

I think of economics as being a set of tools, or a worldview. It's about using incentives. It's about understanding the difference between correlation and causality. The topics you apply that to are a matter of taste, in some sense. I wish I could answer the really difficult macroeconomic questions of our time. I wish I could solve world poverty, or figure out how to make economic growth go faster. The problem is that not only can I not solve those problems, but I think they've turned out to be so difficult that economists in general aren't really that good at them. It's always been my view that it's better to answer a little question well than to tackle a big question and not answer it at all. I actually like "regular" economics. I'm not very good at it, is the problem. I learned a long time ago that it's better to do what you're good at than to pretend to do something you can't do well.

What do you think about the relationship between economics and media, especially advertising and marketing?

One of the nice things about writing a book that becomes a best-selling business book other than that you sell a ton of copies is that all the CEOs come to you and say, "You wrote a best-selling business book, so you must know a lot about business. Why don't you come in and solve my company's problems?" Business and economics have somehow gotten divorced along the way, and lately I've been working on ways to integrate them.

We've been doing a lot of work on advertising and marketing, and my own view is that there's not much evidence that advertising works. It's natural to think that if you run ads, you might care about whether or not they work. Yet a lot of the time, when you talk to the heads of marketing at big companies, they don't actually care. Their job is to spend the money and to make sure the product is prominent, and not really to measure results, which are hard to measure anyway. I've been trying to convince them to do some experiments, but as it turns out it's almost impossible to convince them to, say, not run their ads in certain markets and see if it affects their sales. There's a big electronics retailer that spends $2 billion a year on advertising, and when I talked to them about this, they said it was impossible. Too hard. They couldn't get everyone to buy into it, so they just keep spending the $2 billion.

Have you been criticized for making such strong claims about the possibility that legalized abortion reduces crime?

I was criticized a lot before Freakonomics came out, but really not much at all since then. I've written a lot of academic articles that nobody cared about, so when I wrote the paper about abortion, I thought no one would care about it, either. Then a reporter called me wanting to write something about it. I thought it would be maybe two paragraphs, and then I picked up the early edition of the Sunday Chicago Tribune and saw the page-one headline: "Abortion, Crime Linked." On Monday my voice mailbox was full, and I was getting messages faster than I could download them. After that I still don't answer my phone, to this day.

Everybody hated it, but the theory could not be simpler. It almost has to be true. The first piece is that unwanted children are at an increased risk for crime. That's not controversial. If your mother doesn't love you, life is going to be hard, and that's been proven by 50 years of research. The second piece is that legalized abortion reduced the number of unwanted children. I don't think that's controversial, either. Look at the decline of teen childbearing immediately after abortion became legal. The number of kids put up for adoption plunged right after that. Put them together: Legalized abortion reduces the number of unwanted children. Unwanted children are at risk for crime. Therefore, legalized abortion should reduce crime, with a 15- or 20-year lag as these children grow up. When you put it that way, it's not controversial. It's not a moral statement; there's no moral component at all.

But when the media started coming in, they didn't give me the chance to explain as I just did to you. They tried to make it about race or poverty, which it wasn't about. The beauty of Freakonomics is that we got to write 10 pages on it. When people read that, they're not upset even to the point where Pat Robertson invited me on "The 700 Club" to talk about it.

What inspired you to write this book, and then to give it that title?

Steve Levitt talks with students at SMU
Levitt talks to student before the Forum.

Well, first of all, this was not a book I wanted to write. I didn't want to write a book. Stephen Dubner had written about me in The New York Times, and he created this almost completely fictitious character, a nerdy guy who can take any problem you throw at him, think for about 10 seconds and then answer it. Part of it was correct I'm a very nerdy guy, it's the ability to solve problems that's not so true to life. But people really took to this character he built, and even though I'm not that character, I've been able to milk it for years. It's worked out great.

Publishers started calling me about writing a book, and I told them that if it weren't for academic papers, I couldn't write at all, so I wasn't interested. But Stephen Dubner's literary agent suggested we write a book together. Dubner is kind of a big shot he's written best-selling memoirs and stuff, and in his world it's really embarrassing to write what they call an And Book. "Somebody And Stephen Dubner." That's what you do when you can't make it on your own, so he really didn't want to do it, either. But there was something we both could agree upon, and that was that if they were willing to throw a boatload of money at us, we'd be willing to write a book. So that was our motivation.

To be honest, I thought no one would want to read it, not even my father. In fact, my father thought it was immoral for me to accept a big advance for a book I thought no one would read. But we felt completely unrestrained to write whatever book we wanted to write, and it ended up a book that doesn't look like a regular book. It doesn't have a thesis. It's like the "Seinfeld" of books. It just wanders around wherever it wants to go, and that's where it ends up. It's hard to give a title to a book like that. But my sister, as it turns out, has the most brilliant creative mind of anyone I've ever met, and she called it Freakonomics. She even came up with "rogue economist."

A central theme of your work is that conventional wisdom is often wrong. Have you ever been surprised to find some piece of conventional wisdom to be right?

For good reason, conventional wisdom is mostly right. For example, if you don't sleep much, you might have a hard time staying awake in class. I think of it as rules of thumb to help you make good decisions without having to think about them. But it's not as if conventional wisdom grows organically; sometimes it's manipulated by marketing. The art of what I do is to get a sense of when something is just not right, and often that's when it's really convenient. That's usually when conventional wisdom turns out to be wrong when everybody wants something to be true, rather than having any reason to think it is.

I've read some of your academic papers, and the tone of them is so different from that of your mainstream writing. Do you often find there's a disconnect between the two?

Not as much as you might think. I've always believed there was a bigger role for storytelling in economics and the social sciences than in most academic subjects. You really have to somehow create a storyline as a way of marketing your own work. Many of my papers and seminars have a big storytelling component to them. For instance, my paper on gangs really tries to tell a story about how that gang worked. It wins people over to understanding your arguments. That kind of persuasion is really, really important.

It is true that the writing is about a hundred times better in the book, mainly because Stephen Dubner is an unbelievable writer, and he has a way of making things come to life. But I think people would be surprised by our individual contributions. He really contributed a lot to the content side, and in terms of forming the story, I contributed more than people might think.

Have you always made the sort of unusual connections you make in your work, since you were young?

I was weird as a kid. I don't know if that's the same thing. Strangely enough, I didn't think very much in school, because it wasn't rewarded. I have a good memory, and I found that the best strategy in school was to memorize every piece of information thrown at me, and then just regurgitate it on the exams. That was basically a foolproof way to get an "A" in any subject. When I got into consulting, that was the first time anyone had ever really asked me to think. Knowing there's an answer is incredibly conducive to getting an answer. The hard part in real life is if you don't know if there's an answer to your problem. It can be really hard to figure it out, and there may be no way to do it.

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