Making economics relevant. That has been the central mission of the Becker Center since its inception. Through a combination of research, teaching, and popularization of economic ideas, our goal has been to show the world that economics–when properly done–can not only help us understand the world around us, but also make it a better place to live. Recent macroeconomic events make that mission even more important and pressing.

Here at the Becker Center, we believe in a certain brand of economic research. The foundation of our approach is based on the principles of Chicago Price Theory–a powerful set of tools for understanding human behavior that has been central to the study of economics for nearly a century here at the University of Chicago. The second critical input into the research process is good ideas. It is hard to think of two economists in the last fifty years who have produced better ideas than Milton Friedman and Gary Becker. The third key piece of the puzzle is careful data analysis. Ultimately, it is not pure theory which leads to breakthrough insights, but theory in combination with data.

In this issue of Capital Ideas, we report on a handful of the many projects that are presently ongoing at the Becker Center. As is always the case, these four projects cover an extremely diverse set of topics: racial discrimination, television’s surprising benefits for women in rural India, prostitution, and global warming. These are not standard economic topics, but when looked at through the right economic lens, the researchers at the Becker Center have found a way to uncover insights that others miss.

The first project discussed in this issue is an important new piece of research by Kerwin Kofi Charles and Jonathan Guryan on discrimination. One of the seminal pieces of work on discrimination was done by Gary Becker as part of his dissertation roughly fifty years ago. Becker’s model has become a workhorse among economists interested in this issue, spawning hundreds of follow-up papers. Remarkably, however, Charles and Guryan are the first economists to come up with a clean test of some of the predictions that emerge from Becker’s model. In particular, Becker’s model implies that any racial wage gap driven by discriminatory tastes of employers will depend not on the amount of racism among the most racist employers (who never hire minorities), but rather on the racial attitudes of the marginal employer. Thus, it is possible that there can be widespread racism, and yet no actual discrimination in the labor market, if enough of the employers are unbiased. Also, the greater the minority population in the labor force, the worse discrimination that group is likely to face because minority workers are sorted to increasingly prejudiced employers. In their study, Charles and Guryan cleverly employ survey responses about racial attitudes as proxies for the degree of prejudice across states. They find both compelling evidence in support of the predictions from the Becker model and large implied penalties to black workers who live in states with high levels of prejudice.

The next article discussed is new work by Emily Oster and coauthor Robert Jensen of the University of California, Los Angeles, that identifies an unlikely ally in the fight for gender equality in the third world: satellite television. The authors carried out a large data collection effort in rural India. One of the questions they asked was when satellite television came to a village. Prior to satellite television, television offerings were very limited and viewership was low. After satellite television becomes available, these villagers watch much more TV and are exposed to a wider set of attitudes and lifestyles. Remarkably, negative attitudes toward women that have existed for centuries in these villages appear to be quickly eroded by television. Within just a few years, those villages that get satellite television not only see changes in attitudes toward women (e.g. what situations warrant a wife being beaten by her husband), but also in actual behaviors such as a woman’s autonomy in carrying out daily activities, and even in the use of contraceptives. Villages that remain without television access experience no changes along any of these dimensions.

The third research project included in this issue is a study on the economics of street prostitution carried out by Sudhir Venkatesh, a sociologist at Columbia University, and me. Venkatesh and I find that prostitution activities are far more concentrated than any other type of criminal activity. This is likely attributable to the fact that prostitution, unlike most criminal activities, is organized as a market with the need for buyers and sellers to locate one another. There is a limit, however, to what one can learn from official data on this topic, so we undertook a multi-year data collection effort, involving real-time tracking of more than 100 prostitutes’ activities at various locations around Chicago. A number of interesting insights emerge: street prostitutes earn more turning tricks than doing the other jobs available to them, but their wages are quite low in absolute terms. Pimps prove to be surprisingly valuable to the women who work for them, providing access to a steady flow of highpaying customers. The supply of prostitutes appears to be quite elastic–in response to a short-term demand shock associated with Fourth of July family reunions in the local park, many local women who otherwise are not prostitutes enter the market to take advantage of a spike in prices. One of the most shocking findings relates to local law enforcement: a prostitute is more likely to have sex with a police officer than to be arrested by one in the sample.

The final research project in this edition of Capital Ideas is an economic analysis of global warming being carried out by Gary S. Becker, Kevin M. Murphy, and Robert H. Topel. Dealing with global warming is equal parts science, politics, and economics, although the public debate thus far has focused much more on the scientific and political parts of the equation. The work by Becker, Murphy, and Topel makes a number of important, but frequently misunderstood points. The first of these relates to discounting the future. Because any benefits of avoiding global warming come far in the future, whereas the costs of reducing carbon emissions are felt now, it matters critically what discount rate one assumes in the cost-benefit calculation. Many noneconomists have argued for very small discount rates on the moral grounds that future generations are just as important as the current one, but Becker, Murphy, and Topel point out that such arguments fail to recognize what discount rates actually reflect. The appropriate discount rate in this context is the rate of return on capital, which represents the opportunity cost of investing in all types of assets, including investments in global warming. These authors advocate a slow-and-steady approach to global warming interventions, noting the danger of unilateral actions (e.g. the United States trying to curb its fossil fuel usage). Since there is a world market for fossil fuels, much of the benefit of reduced U.S. fuel consumption might be offset by a decline in the world price for coal and oil that would encourage other countries to burn more of these fuels.

One of the greatest benefits of doing research at the Becker Center is that no subject is off limits. Armed with the right tools and some creativity, we believe economics can shed insight on any topic, as this issue of Capital Ideas makes clear.