Chicago Economists on the Crisis

Earlier this week, Dubner linked to a terrific New Yorker piece by John Cassidy, which explores the state of the “Chicago School.” Following up, Cassidy has posted some very revealing interview transcripts.

All the interviews are with truly great economists. The very best come across as trying to build insight that is both rigorous and empirically relevant. But some come across as obtuse; others as arrogant; and some oblivious, or uninterested in evidence. Time and again I was surprised at how readily the interviews slipped from careful insight into personal ideology and dogmas. In each case, the interviews are revealing. (The charitable interpretation is that perhaps what they reveal is how seriously each took Cassidy’s interviews.)

Read them all, and come to your own judgments:


Kyle

Many in the Chicago School (the school-of-thought) have been arrogant, obtuse, and ignorant of evidence for over 25 years. If something contradicts their evidence, it's an "outlier" even when dozens of studies begin to pile up - they are outliers. The Chicago School economists have mastered the art of confirmation bias, and they couple that with the Dunning-Kruger effect and some arrogance thrown it - it makes a truly remarkable show. Somewhere in the 1980s the Chicago school stopped caring about evidence and how the world actually worked - it's just the public is finally getting the opportunity to witness it.

Rajan and Heckman were the only two that came off even remotely well in those interviews (unsurprisingly really). The rest either came off as arrogant, completely oblivious, or in about three of those interviews - both.

The Chicago economics department should be embarrassed.

frankenduf

the 'Chicago School' is just the apologist arm of the imperialist economic policy of aggressive capital investment/turnover under the guise of 'free trade' or 'free market'- powerful global investment capital siphons off local capital, via subverting any social regulations to stop such concentration of wealth at the expense of the citizenry- this is how you get shills like Fama saying 'what housing bubble?' after the large capital shift from taxpayers to bankers, under the auspices of the 'free market'

SJA

@Kyle,

What was wrong with Posner's interview? In your view, was he arrogant, completely oblivious, or both? Personally, I thought his answers were cogent.

Elton

I've only read Becker's so far, but I didn't find him obtuse or arrogant.

Greg

Kevin Murphy's explanation of why the stimulus doesn't work is the least ideological argument I've seen made by either its proponents or opponents.

As far as "uninterested in evidence," I can't think of a single academic paper written by any of the above that is not entirely about evidence. (though I really haven't read much by Posner).

Such criticism is, I think, very much out of place considering this was a casual magazine interview... Paul Krugman is arrogant (and occasionally obtuse) on his blog everyday. He happens to be a much less difficult target than the Chicago School economists - who's views (however accurate) have been widely shunned by many who prefer government involvement in markets.

Manuel Vasquez

It would be more salacious if you named names.

steve ezell

interesting set of interviews

tn requin

What was wrong with Posner's interview? In your view, was he arrogant, completely oblivious, or both? Personally, I thought his answers were cogent.

Bobby G

Gene Fama and I seem to share a lot of the same ideologies.

I think a lot of what Fama says rings true. I can see how people can get frustrated with his interview... he mentions several times that he thinks most of the proposed fixes / regulation plans are bad, but when asked about what his solution would be, he declines to state. On one hand, it's a very protected state of being... he's set up to get the "I told you so" finger pointed if someone's idea fails, and doesn't offer his own proposal to be subject to the same potential attack.

But I think there are still some valid points underneath this attitude. Firstly, markets are incredibly complex, complicated machines built using intuitive and simple foundations, such as pure efficiency and the taking advantage of opportunities. Secondly, people are quick to jump on bandwagons when it comes to those hybrid political-economic discussions. A lot of misinformed and unprepared "experts" go on TV for 2 minutes and talk about the recession and, depending on what channel and what message is being sent, people believe them and it can be very difficult to show them they've made a mistake.

This latter point is Fama's reason for not wanting to offer concrete ideas for solutions to this and future recessions until he has done reasearch enough to be comfortable. I can understand why someone may view this as arrogant, but then that someone should ask himself why he would demand an explanation and solution proposal that *isn't* well thought-out and researched.

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Shiloh May

Anyone who thinks that the subprime mortgage market wasn't being heavily subsidized by the Federal government hasn't been paying attention. The government wanted more of certain types of people (for whatever reason) to own real estate and they subsidized risk and flexed their muscles to "encourage" financial institutions to lend in the right directions to make this happen.

Therefore the real estate market and by extension all markets connected to it were not "free" or "unregulated" by any stretch of the imagination. The amount of active rules, regulations, acts and mandates pertaining to residential mortgage lending on the books RIGHT NOW is bind bending. Google away.

Saying that this credit/real estate induced financial crisis repudiates free market theory or The Chicago School and somehow argues for even more regulation and government control simply defies common sense. Yeah, I think we need more cowbell.

Efficient markets? Yeah sure but supply vs. demand controls the short term and value controls the longer term. All markets are perfectly efficiency in the same way that in the long term we're all dead. Oftentimes there is information asymmetry and almost always information is well disseminated but perceived differently by different parties.

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Joe G

Not surprising that there would be some cranky responses from U of C economists with much of the interview focusing on whether U of C economists have been full of it all these years. Still a very interesting series of discussions, from both academic and public policy-making perspectives.

The simplistic policy arguement -- something went wrong with private markets in Sept 2008 so the govt has to come in and fix it all -- can easily end up being a prescription for over-reacting in the other direction. Many thanks to all and to this site for posting the link.

James Briggs

We assume Soviet style socialism is a failed system because after 70 years it failed. But classical and neo-classical economics fails in about 9 years. The point is the billions were stolen from the middle class and given to the rich because deregulation under Bush and Clinton. Not all deregulation is bad but some rule changes were nothing less them a license to steal. The crooks bought up all the media outlets including the internet and put forth an unending message that the middle class should commit suicide and it worked. Why didn't anyone think to ask Keynesian Economics what they think. Ha Ha.

James Briggs

Adam Smith believed that governments were necessary to prevent fraud and force. Neoclassical economists are puppets of the rich who fund them. People who host influential web sites also get funding and speaking engagements. The Chicago School argues that we should get rid of the rules that protect investors from being defrauded because the market would take care of the problem. They know full well that their arguments are false because the short-term gains of fraud will outweigh the long-term correction provided by the market. They know it because they know they will eventually be exposed as frauds but by that time they will have retired to their villas in France.

James Briggs

These economists seem to forget we went through the same thing in 1929. The economists of the Chicago School of Economics know full well that governments are need to prevent fraud and force in the market place. Nothing went wrong with the markets they followed classical economic theory. The invisible hand makes people follow profit. If the rules are changed so that fraud yields greater profits than honesty then fraud in the market will outweigh honesty. They know full will that people will lie if they are paid to lie. They know it because they have been paid to lie by those who used fraud and force in the market to become billionaires.