The Demise of the Chicago School

This morning's Salon has a blistering essay on the demise of the Chicago School as the dominant economic player on the planet. The Economics department at the university of Chicago currently has five Nobel laureates on faculty, and more important, its ideas have dominated not only the profession but public policy more generally, for thirty years. It is concrete proof that ideas matter, especially when they achieve a status of common sense assumptions.

Indeed Friedman's Capitalism and Freedom, published in 1962, can be seen as a starting point in the retreat from post-war Keynesianism, and arguably the beginning of a pattern of recurring financial crises, the latest and most severe of which we are living through now (see Minsky's Stabilizing an Unstable Economy).

My own graduate work in public policy coincided with the ascendency of these ideas, and indeed in the mid-1980s, the only real opposition to the monetarist juggernaut seemed to come from a group of completely marginalized neo-marxist survivors from the 1960s and the very rare usually shell-shocked defender of the post-war concensus. Yet in so many ways, we can now see clearly where these ideas have brought us. As the Salon article notes:

I'm not going to cut it too fine: I think you can very well blame the Chicago school for the fiasco of growing income inequality in the U.S. Nice triumph for deregulated capitalism, boys! Ronald Reagan listened closely to Milton Friedman and the Chicago school godfather's disciples have been rife in the Republican administrations that have dominated the White House ever since the Californian swept into Washington and started blaming government for our problems. Well guess what? It didn't work so well. The rich got richer and then screwed the pooch.

The larger lesson here is that ideas matter. Common sense is all too often nonsecical, and needs to be challanged.