Freakonomics

Freakonomics

A book for Economy Freaks?

by Boris Böing and Leo Engele

This is the real thing, not your boring economy schoolbook. You won't fall asleep reading this book. You will learn how the authors found out – by a clever use of economic theory – that the Ku Klux Klan (the racist creeps with the white hoods) operate just like real-estate agents. Or, why cocaine dealers make such a poor living. You would expect those gang-men to be rich, wouldn't you, but most of them actually live with their mothers!

Steven Levitt, professor of Economics, Chicago University. (Photo with author's permission.)

Freakonomics was written by economy professor Steven D. Levitt and journalist Stephen J. Dubner. When The New York Times asked him to write an article on Levitt, Dubner discovered that the famous Chicago professor was not just an economist like so many others. Levitt investigates sports, crime and politics with the eye of an economist and comes with totally surprising results.

Stephen Dubner, journalist. (Photo with author's permission.)

In 2001, together with John Donohue, he wrote an article, The Impact of Legalized Abortion on Crime. Between 1970 and 1973, the US government legalised abortion. Levitt and Donohue could demonstrate that, around eighteen years after abortion was legalised, crime was much less. This effect was stronger in states with higher numbers of abortion. Their explanation is that unwanted children commit more crime than wanted children. The legalisation of abortion resulted in fewer unwanted children. So, when these children were 18 years old, there were less of them to begin committing crimes. (See Legalized abortion and crime effect.) However, Levitt's and Donohue's ideas met strong opposition by those who believe that abortion has a bad effect on society.

Ku Klux Klan

Chapter 2: How Is the Ku Klux Klan Like a Group of Real-Estate Agents? is one of the most intriguing chapters of this book. Levitt compares real-estate agents with the KKK. The keyword of this chapter is: Information. How can you become more powerful than the KKK and how can you sell your house at a higher price than a real-estate agent would do for you?

If you have the same information they have.

Members of the Ku Klux Klan. The burning cross is a symbol used by the Klan to create terror. They often burned crosses before they went out to lynch someone. (Source: Wikipedia.)

What do we know about this secret and dangerous organisation, the KKK? That's an exciting story itself. After World War II, 30-year-old Stetson Kennedy wanted to find out about them. He decided to go undercover and become a member of the Ku Klux Klan. Under his false name John S. Perkins he found out a lot about the organisation. One of the things he discovered was that the Klansmen often threaten with, but don't always use, violence.

During his first weeks undercover, Kennedy made plans to do maximum damage to the Klan. Several attempts were unsuccessful until he ran into a group of children playing games with secret passwords. This gave him the brilliant idea that he could damage the KKK most by revealing their secret passwords.

The radio programme "The Adventures of Superman" made a lot of secret information about the Ku Klux Klan, including their passwords, public and ridiculed it. Now, Kennedy had them where he wanted them: suddenly, the Klan became unpopular and lost many members. The Klan-leaders had a nasty surprise when the radio-makers published the new passwords, that the Klan had quickly created, in their next programme. Although the Klan still held many members, the organisation was never the same again ....

An expert is someone who has information that most ordinary people do not have. That's why you use the services of a real-estate agent (a house expert) if you want to sell your house. You probably don't have much experience in selling houses and you are afraid that you will sell your house for less than what it's worth. Or, don't even sell it at all. A real-estate agent takes care of all this and sells your house fast and at the right price, you think. You are happy to have an expert at your side. What you don't know is that the real-estate agent only sees you as a source of income.

Research shows that a real-estate agent keeps his own house for sale for ten days longer (waiting for better offers) than his clients' houses. He also sells his own house at a better price: on average $ 10,000 more. Why would the agent not do the same with your house? The answer is simple: if the real-estate agent has your house on sale for ten days longer, it will cost him a lot of time and effort. And he is not going to get much profit from it. For every $ 10,000 extra you receive (for a house that costs, let's say, $ 300,000) he only receives $ 150 extra. That's not much money for a whole lot of extra work. So, he will tell you to accept the first offer that you get, because it's such an attractive offer. For him, yes. Not for you.

It's very surprising to read how real-estate agents think and to find out that they are not interested in the best for their clients, but only in what's best for them. It's also surprising to find out that one person going undercover can damage an entire large and dangerous organisation like the Ku Klux Klan. It's all about who controls the important information.Like the other chapters of this book, this chapter contains many interesting facts and important data.

Drugs dealers and their moms

Chapter 3, "Why do drugs dealers still live with their mothers?" is another good one. It looks at the subject from different sides and explains it well.

Levitt used information that he received from someone who became involved in the drugs scene by coincidence. One day, a gang member hands him over some very secret information: the gang's entire bookkeeping over the past four years, including all financial transactions. The books made it quite clear who held the power positions in the gang.

Levitt tells the story from the point of view of his informant, and this makes it even more believable to us. He also makes it clear how difficult the life of a drugs dealer is. And there's your answer: drugs dealers live with their moms because they cannot afford a house of their own. To gang members often the only opportunity for a better life is dealing drugs.

This chapter also compares drugs gangs with American enterprises. These two have more in common than you would think! For one, those at the top make the really big money while the lower ranks have to make do with very little. Those who make less money usually accept their position because they hope that, one day, they will also get to the top where they can make their own fortune.We learned a lot of new things about drugs dealers and got an entirely new view of the world of gangs.

Sumo wrestlers cheat and so do teachers according to the book Freakonomics. (Photo source: Wikipedia.)

The introduction is one of the least interesting parts of the book. The authors give away many of the explanations and conclusions that we think they should have left for the chapters. This takes away some of the thrills of reading this book, which is a pity.An other less interesting chapter is chapter 1: "What do school teachers and sumo wrestlers have in common?" There were too many numbers for our liking, and we lost track of what the authors wanted to say.

A last comment: the authors once too often tell us how much they like each other. Very strange, we think. It's a bit like advertising yourself in your own book. Pieces from an article about Steven Levitt appear between chapters. Why not save these for a section at the end 'About the Authors', if you really need this.

Conclusion

We are very enthusiastic about this book. It makes you think about topics you would never have thought about. Levitt and Dubner make connections between areas that you would not think they were related. Take the example of the Ku Klux Klan and real-estate agents. They also discuss a great variety of subjects so it never becomes boring.

So, if you want to know why teachers, as well as sumo wrestlers (the big fat guys), cheat, and much more surprising topics: read this book!

Sources

http://en.wikipedia.org/wiki/Steven_Levitt

http://en.wikipedia.org/wiki/Legalized_abortion_and_crime_effect

Last Updated ( Wednesday, 02 January 2008 )

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