1. History of Economic Thought
Gary Becker (1930 – 2014)

2. Background – Influenced by – Contributions – Impact – Critique – Questions
Gary Becker
American Economist and 1992 Nobel Laureate “for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior".
Gary Becker 1930 – 2014
9/23/2018

3. Background – Influenced by – Contributions – Impact – Critique – Questions
Early life, education
Born in Pottsville, Pennsylvania - a little coal mining town in Eastern Pennsylvania
Moved to Brooklyn in the mid-1930’s
Gary Becker 1930 – 2014
9/23/2018

4. Early life, education Well Grounded in Brooklyn
Background – Influenced by – Contributions – Impact – Critique – Questions
Early life, education
Well Grounded in Brooklyn
“We had many lively discussions in the house about politics and justice. I believe this does help explain why by the time I finished high school, my interest in mathematics was beginning to compete with a desire to do something useful for society.”
Gary Becker 1930 – 2014
9/23/2018

5. Early life, education B.A. Princeton University – 1951
Background – Influenced by – Contributions – Impact – Critique – Questions
Early life, education
B.A. Princeton University – 1951
Graduated in three years
“I accidentally took a course in economics, and was greatly attracted by the mathematical rigor of a subject that dealt with social organization. During the following summer I read several books on economics.”
Gary Becker 1930 – 2014
9/23/2018

6. Early life, education Ph.D University of Chicago – 1955
Background – Influenced by – Contributions – Impact – Critique – Questions
Early life, education
Ph.D University of Chicago – 1955
“My first encounter in 1951 with Milton Friedman's course on microeconomics renewed my excitement about economics.”
“I published two articles in 1952, based on my research at Princeton. But I realized shortly after arriving in Chicago that I had to begin to learn again what economics is all about.”
Gary Becker 1930 – 2014
9/23/2018

7. Career Columbia University - 1958
Background – Influenced by – Contributions – Impact – Critique – Questions
Career
Columbia University
Becker turned down a much larger salary from Chicago to take a similar appointment at Columbia and a position at the National Bureau of Economic Research
“I developed greater independence and self- confidence than seems likely if I remained at Chicago.”
Gary Becker 1930 – 2014
9/23/2018

8. Career Returned to University of Chicago - 1970
Background – Influenced by – Contributions – Impact – Critique – Questions
Career
Returned to University of Chicago
Felt intellectually stale at Columbia so returned to Chicago
Decision to leave hastened by the student riots in 1968
“…many faculty members behaved no better than the students.” 
Gary Becker 1930 – 2014
9/23/2018

9. Career Nobel Prize in Economics in 1992
Background – Influenced by – Contributions – Impact – Critique – Questions
Career
Nobel Prize in Economics in 1992
Gary Becker's research contribution consists primarily of having extended the domain of economic theory to aspects of human behavior which had previously been dealt with - if at all - by other social science disciplines such as sociology, demography and criminology. In so doing, he has stimulated economists to tackle new problems. 
Gary Becker 1930 – 2014
9/23/2018

10. Other Accomplishments
Background – Influenced by – Contributions – Impact – Critique – Questions
Other Accomplishments
Held joint appointments with the Department of Economics, the Department of Sociology, and the Graduate School of Business.
Becker won the John Bates Clark Medal in 1967, awarded to “that American economist under the age of forty who is adjudged to have made a significant contribution to economic thought and knowledge”.
Gary Becker 1930 – 2014
9/23/2018

11. Other Accomplishments
Background – Influenced by – Contributions – Impact – Critique – Questions
Other Accomplishments
United States' Presidential Medal of Freedom in 2007, the highest civilian award of the United States.
Gary Becker 1930 – 2014
9/23/2018

12. Background – Influenced by – Contributions – Impact – Critique – Questions
Milton Friedman
Noble Prize in Economics 1976 “for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy”. Becker took Friedman’s microeconomics course.
Gary Becker 1930 – 2014
9/23/2018

13. Background – Influenced by – Contributions – Impact – Critique – Questions
George Stigler
Noble Prize in Economic 1982 "for his seminal studies of industrial structures, functioning of markets and causes and effects of public regulation“.
Best known for Economic Theory of Regulation.
Published two controversial papers together with Becker.
Gary Becker 1930 – 2014
9/23/2018

14. Other Influences Gregg Lewis - labor markets
Background – Influenced by – Contributions – Impact – Critique – Questions
Other Influences
Gregg Lewis - labor markets
T.W. Schultz - human capital
Aaron Director - industrial organization
L.J. Savage - subjective probability and the foundation of statistics
Thomas Malthus - wages and average income
Gary Becker 1930 – 2014
9/23/2018

15. Main Contributions Human Capital Family Economics
Background – Influenced by – Contributions – Impact – Critique – Questions
Main Contributions
Human Capital
Family Economics
Economics of Discrimination
Crime and Punishment
Addiction
Politics
Organ Markets
Gary Becker 1930 – 2014
9/23/2018

16. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Economists use the abstract name "Human Capital" to describe the quality of labor, which is a composition of workers' physical health, skill level, their level of education, etc.
Before Becker: labor input is measured in number of workers, or hours of work 𝐿.
Becker: labor input also includes human capital ℎ∙𝐿
Gary Becker 1930 – 2014
9/23/2018

17. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Human capital can be accumulated through investment (education, on-the-job training). Example: individual education choice. max 𝑐 1 , 𝑐 2 ,𝑒 𝑢 𝑐 1 +𝛽𝑢( 𝑐 2 ) 𝑠.𝑡. 𝑐 1 − 𝑝 𝑒 𝑒=𝑤( ℎ 1 ) 𝑐 2 =𝑤( ℎ 1 +𝑒)
Individuals differ in their benefits and costs of education, and therefore we observe differences in investment in human capital.
Gary Becker 1930 – 2014
9/23/2018

18. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Example: on-the-job training max 𝑐 1 , 𝑐 2 ,𝑒 𝑉=𝜋 1 + 𝜋 2 1+𝑟 𝑠.𝑡. 𝜋 1 =𝑅 ℎ 1 −𝑤 ℎ 1 − 𝑝 𝑒 𝑒 𝜋 2 =𝑅 ℎ 1 +𝑒 −𝑤( ℎ 1 +𝑒)
Firms weigh cost and benefit of on-the-job training.
Gary Becker 1930 – 2014
9/23/2018

19. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
The return to human capital can me measured (estimated): ln 𝑤 𝑖 = 𝛽 1 + 𝛽 2 ∙ 𝑆 𝑖 + 𝛽 3 ∙𝐸𝑥 𝑝 𝑖 + 𝑢 𝑖 The estimates 𝑏 2 , 𝑏 3 of the unknown coefficients, 𝛽 2 , 𝛽 3 , are the measured returns to schooling and experience.
Gary Becker 1930 – 2014
9/23/2018

20. 1. Human Capital Applications include:
Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Applications include:
Return on education and on-the-job training,
Wage inequality,
Wage profiles over time
Accounting for cross-country income differences,
Accounting for economic growth, migration, investment and earnings in the health sector.
Gary Becker 1930 – 2014
9/23/2018

21. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Application: Accounting for cross-country income differences. 𝑦 𝑖 𝑦 𝑗 = 𝛼 𝑖 𝛼 𝑗 ∙ 𝐴 𝑖 𝐴 𝑗 ∙ ℎ 𝑖 ℎ 𝑗 1−𝜃 ∙ 𝑘 𝑖 𝑘 𝑗 𝜃
𝑦 𝑖 𝑦 𝑗
𝛼 𝑖 𝛼 𝑗
𝐴 𝑖 𝐴 𝑗
ℎ 𝑖 ℎ 𝑗 1−𝜃
𝑘 𝑖 𝑘 𝑗 𝜃
8.885
0.857
2.934
1.381
2.557
Gary Becker 1930 – 2014
9/23/2018

22. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Application: Growth Accounting (approximate growth rates) 𝑦 = 𝛼 + 𝐴 + 1−𝜃 ℎ +𝜃 𝑘
Gary Becker 1930 – 2014
9/23/2018

23. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Application: Distribution of Income in Developed Countries.
Gary Becker 1930 – 2014
9/23/2018

24. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
Human capital theory explains why the conflict between laborers and capitalists did not bring and end to Capitalism, as Marx predicted. With access to education, workers are also capitalists.
Gary Becker 1930 – 2014
9/23/2018

25. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Human Capital
“The most valuable of all capital is that invested in human beings.” Alfred Marshal, Principles of Economics
Gary Becker 1930 – 2014
9/23/2018

26. Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Basic idea: A household is a "small factory“ (firm) which produces goods, such as meals, a residence, entertainment, children, etc., using time and input of ordinary market goods.
Gary Becker 1930 – 2014
9/23/2018

27. Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Example: demand for children. max 𝑐,𝑛,𝑒 ln 𝑐 +𝛼 ln 𝑛 +𝛽ℎ(𝑒) 𝑠.𝑡. 𝑐+ 𝑝 𝑛 + 𝑡 𝑛 𝑤 𝑛+ 𝑝 𝑒 𝑒𝑛=𝑤 𝑐 – consumption 𝑛 – number of children ( 𝑝 𝑛 , 𝑡 𝑛 - goods and time cost) 𝑒 – education (investment in children’s quality, ℎ(𝑒)
Gary Becker 1930 – 2014
9/23/2018

28. Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Example: demand for children. max 𝑐,𝑛,𝑒 ln 𝑐 +𝛼 ln 𝑛 +𝛽ℎ(𝑒) 𝑠.𝑡. 𝑐+ 𝑝 𝑛 + 𝑡 𝑛 𝑤 𝑛+ 𝑝 𝑒 𝑒𝑛=𝑤 An increase in the wage of one member of the household gives rise not only to changed incentives for work on the market, but also to a shift from more to less time-intensive production.
Gary Becker 1930 – 2014
9/23/2018

29. 2. Family Economics Tradeoff between quality and quantity.
Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Tradeoff between quality and quantity.
Gary Becker 1930 – 2014
9/23/2018

30. Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Tradeoff between quality and quantity. Explains why Malthus’ prediction did not materialize.
Gary Becker 1930 – 2014
9/23/2018

31. 2. Family Economics Example: Labor force participation, by gender.
Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Example: Labor force participation, by gender.
Gary Becker 1930 – 2014
9/23/2018

32. 2. Family Economics Example: division of labor within a household.
Background – Influenced by – Contributions – Impact – Critique – Questions
2. Family Economics
Example: division of labor within a household.
Bar, Michael, and Oksana Leukhina. "To work or not to work: did tax reforms affect labor force participation of married couples?." The BE Journal of Macroeconomics 9, no. 1 (2009).
Gary Becker 1930 – 2014
9/23/2018

33. 3. Economics of Discrimination
Background – Influenced by – Contributions – Impact – Critique – Questions
3. Economics of Discrimination
First systematic effort to use economic theory to analyze the effects of prejudice on the earnings, employment and occupations of minorities.
Gary Becker 1930 – 2014
9/23/2018

34. 3. Economics of Discrimination
Background – Influenced by – Contributions – Impact – Critique – Questions
3. Economics of Discrimination
Discrimination is defined as a situation where an economic agent is prepared to incur a cost in order to refrain from an economic transaction with someone who is not in his/her own group (e.g. race, sex). Becker demonstrates that such behavior, acts as a "tax" on the discriminator. Discrimination thus tends to be economically detrimental not only to those who are discriminated against, but also to those who practice discrimination.
Gary Becker 1930 – 2014
9/23/2018

35. Background – Influenced by – Contributions – Impact – Critique – QuestionsMC AC
MC with discrimination
costs
AC with discrimination
Quantity of output 35 Q

36. Background – Influenced by – Contributions – Impact – Critique – Questions
4. Crime and Punishment
Becker’s interest in crime started after he committed one – illegal parking. He weighed the cost and probability of the fine against the benefit of parking conveniently.
Gary Becker 1930 – 2014
9/23/2018

37. Background – Influenced by – Contributions – Impact – Critique – Questions
4. Crime and Punishment
Becker’s interest in crime started after he committed one – illegal parking. A criminal, with the exception of a limited number of psychopaths, is a rational individual, who weighs cost and benefits of an action. Instead of regarding criminal activity as irrational behavior associated with the specific psychological and social status of an offender, criminality is analyzed as rational behavior under uncertainty.
Gary Becker 1930 – 2014
9/23/2018

38. Impact on Economics Expanded the Horizons of Economics.
Background – Influenced by – Contributions – Impact – Critique – Questions
Impact on Economics
Expanded the Horizons of Economics.
Introduced economic reasoning to sociological issues, such as discrimination, family, and crime, previously considered outside of economics by Neoclassic economists. He uses the same tools in examining marriage markets as in examining financial markets.
Brought to light the importance of human capital in growth economics.
Gary Becker 1930 – 2014
9/23/2018

39. Background – Influenced by – Contributions – Impact – Critique – Questions
Impact on Economics
Most of the research in labor economics today is focused on Becker’s ideas of education, family.
Gary Becker 1930 – 2014
9/23/2018

40. Background – Influenced by – Contributions – Impact – Critique – Questions
Impact on Policy
Becker consulted the government regarding data collection and policies to improve the quality of education.
Gary Becker 1930 – 2014
9/23/2018

41. Background – Influenced by – Contributions – Impact – Critique – Questions
The Becker Posner Blog
Gary Becker 1930 – 2014
9/23/2018

42. Alexander Rosenberg: Professor of Philosophy – Duke University
Background – Influenced by – Contributions – Impact – Critique – Questions
Alexander Rosenberg: Professor of Philosophy – Duke University
“Intellectuals are like mafia—they only kill each other.”
Alexander Rosenberg makes criticism of Becker’s main argument about the applicability of economic approach to all human behavior. He calls Becker’s approach the “homo economicus” model in the social sciences.
Gary Becker 1930 – 2014
9/23/2018

43. Background – Influenced by – Contributions – Impact – Critique – Questions
1. Why do you need college?
Gary Becker 1930 – 2014
9/23/2018

44. 2. Are suicide terrorists rational?
Background – Influenced by – Contributions – Impact – Critique – Questions
2. Are suicide terrorists rational?
How do you propose fight terrorism in the following cases:
Suicide terrorists are irrational.
Suicide terrorists are rational.
Gary Becker 1930 – 2014
9/23/2018

45. Background – Influenced by – Contributions – Impact – Critique – Questions
More Questions
Give example when you applied cost/benefit analysis when deciding whether break the law or not.
Can you come up with example in which you made a choice without cost/benefit analysis? In other words, are there choices that we make, that don’t involve cost/benefit analysis?
Gary Becker 1930 – 2014
9/23/2018