The Lineage of Freakonomics,

From Nietzsche and Galbraith to Levit...

            The wildly popular book “Freakonomics”, written by Steven Levit and Stephen Dubner, asserts the theory that “morality represents the way we would like the world to work and economics represents the way it actually does work.” It challenges its essential theme, that cheating is ingrained in society, and asks the question of itself, what role do economic incentives play in this sociological pattern, questioning the very basis of capitalist theory itself, that in a fair market, supply and demand provide the balance that should create a level playing field. But what is a level playing field? What is cheating? To find this answer one must understand the concept of “value” and “society”, one must ask moral questions, or abstract questions, to find economic, or concrete answers. In effect, “Freakonomics” asks this question: if morality represents the way things should work and economic theory represents the way things do work, why does one require the other to function properly? Levit tackles economic theory with a philosophical eye, and offers a series of tests to support his ideas. Levit correctly understands the duality of man, the thinking man and the emotional man, the rational man and the dreamer. No theory, like no man, is perfect. Nothing is concrete and nothing is ideal, the answers to sociological behavior lies somewhere between what should happen and what will happen, and where there are grey areas people will cheat, or explore flaws in the system. Understanding these principles, the principles of economy and morality that create the “Freakonomics” philosophy, one can see a direct lineage that combines both moral philosophy and economic theory. How can one be viewed by the other if one is not influenced by the other? In the case of “Freakonomics”, one can look back at two works from two fields, “The New Industrial State” (1967) by Harvard economist John Kenneth Galbraith, and “Beyond Good and Evil” (1886), a collection of writings self-published by German existentialist philosopher Friederich Nietzsche. While the connection between Galbraith and Levit is clear in an economic sense, the connection to Nietzsche is not so apparent, but in order to “cheat”, one must understand the theory of willpower, of value, and of good and evil. Nietzsche is a logical beginning.

            “Beyond Good and Evil” is a masterful work that discusses the lack of originality in moral philosophy at that point in time. Nietzsche believed that nineteenth century philosophy centered too much on Christian faith and the belief in an external higher power. His will to power, or the belief that human beings do not exist to exist, but exist to improve and eventually even control their surroundings, is a fundamental building block in Levit’s work in “Freakonomics”. It helps to validate Levit’s theory that cheating is ingrained into patterns exhibited by society, because cheating is an extension of the fundamental will to power, which is a natural human condition. Humans will do what it takes to exert their will, therefore society, a collection of humans, will in given circumstances exhibit the same characteristics. Essentially Nietzsche states that there is no universal morality. There are weaker people and there are stronger people. A person is beyond good and evil, and is only true to his or her own needs, but not everyone is created equally in ability. People, however, are not beyond good and evil and use moral constraints as a shackle to control the stronger person, as the stronger person’s will to dominate is generally higher than the average person’s. This destroys the theory of a level playing field, and the ability to cheat in such a utopian playing field. However even Nietzsche readily admits that morality, or good and evil, exists as a factor for the masses, that it is a small percentage of “great” or strong beings that breaks away from this belief and will “cheat”, or exert their will. This belief is borne out in the Bagel “experiment” of Paul Feldman as discussed in “Freakonomics”. Feldman started a bagel delivery business that collected funds on an honor system, asking for payment for bagels taken in a corporate structure with no one around to collect the payment. After a lengthy period of time he found that 87-90% of his “customers” honored his system and paid him for his services (there were some variations in different companies, some higher and some lower, this percentage reflects the overall average), and he was very rarely plagued by outright cash theft, though it did occur. While this seems to be a “good” percentage and Feldman made a good livelihood from his efforts, it verifies Nietzsche and Levit’s assumption; there is always a percentage of society that will cheat, or inflict their will, to manipulate results to match their desires. If both the bagel experiment and Nietzsche’s ideal support the building block of Levit’s theory, that cheating is an ingrained sociological pattern, then what bearing do economic incentives have on this pattern? For this answer we must look to another experiment covered by “Freakonomics” as well as the work of former Harvard economist John Kenneth Galbraith.

            “The New Industrial State” is a book written by Galbraith in 1967. The book concerns itself with the culmination of Galbraith’s work, summarizing his theory that there is no such thing as a level economic playing field, as the theory of supply and demand itself has been tainted and distorted over the years by advertising, marketing, and other external forces. In effect, capitalism and industry are “cheating” to distort the playing field for material gain, as if the economic system itself is one giant being with a will to power. In this state, even need plays second fiddle to desire as facts are manipulated and the truth is distorted to sell merchandise. The merchandise with the better pitch is more successful, or at least steals some success, from the best available merchandise with a lesser marketing system. Marketing itself is often a lie or embellishment in order to sell product, politicians, news shows, or whatever it is pitching, and therefore helps to ingrain the cheating mentality into society itself. In fact, the answer to Levit’s question is that economic incentives increase the likelihood of cheating. “Freakonomics” points that out with concrete examples and not theory.

            This belief, that society breeds cheating and that economic incentive increases this behavior, holds true in the day care center tests of Israel which are covered in “Freakonomics”. When a $3.00 fine is introduced for tardy parents at ten different day care centers throughout Israel, the tardy infractions didn’t decrease, they more than doubled. Why? Why did clearly inconsiderate behavior double when a fine was levied? Because the fine, or economic incentive, a sanction in this case, gave a justification to the cheater, or rule breaker, as a line was drawn economically. Instead of reinforcing the fact that children are to be picked up by a certain time or else (perhaps loss of service), it sent the message that children are to be picked up by a certain time or else… it will cost $3.00. It didn’t make the deviant behavior any less deviant, it put a price on it, which more people found affordable than the unnamed alternative, stripping away the morality issue. Economic incentives create a clear line that takes morality out of play. It becomes a question of I can afford it or I can’t, not of right and wrong.

            In the end “Freakonomics” assertion is supported by test after test, and is reinforced by the works of Nietzsche and Galbraith. It is the natural crossroads of morality and economics. The individual will to power coupled with the economic paradigm of reward and punishment produces competition, and competition breeds cheating, according to Levit and Feldman, the bagel man, at least 10-13% of the time.