Archive for April 28th, 2009

Andrew Leonard has a post (h/t Mark Thoma) about “the great crash of the ‘Chicago school’ of economics.” His post is motivated by the awarding of the Nobel to Paul Krugman and more recently, the JBC Medal going to Emmanuel Saez. Leonard writes,

It’s been a bad year for the University of Chicago Economics Department. And I’m not just talking about Alan Greenspan’s remark to Congress that he “made a mistake” about the ability of markets to self-regulate themselves…

For any other economics department, missing out on the big prizes wouldn’t be such a big deal. You can’t win ’em all, you know; any economist knows that down to the marrow of his or her rationally-expecting bones…Still, for the University of Chicago, these awards have practically become a birthright. No other econ department has racked up nearly so many…

Does this year’s double-whiff mark the beginning of a trend? I’ll leave it to the quants to crunch the data. But here’s where it’s gets really embarrassing. It must have been a hard pill to swallow for the hard-core Chicago schoolers when Paul “John Maynard Keynes is my hero” Krugman won the Nobel Prize last year. Sure, everyone knows he is a brilliant economist who was always considered on the short-list, but to have the single most ferocious propagandist for government intervention in the economy get the highest approbation possible in the discipline has to be psychologically brutal for your average free market fundamentalist.

But to my mind, the news that U.C. Berkeley’s Emmanuel Saez won the John Bates Clark award should be even more of a nightmare for the heirs of Milton Friedman. David Warsh does a nice job of summing up his research here, but the gist is this: Saez has done more than any other economist to document and prove the steady growth of income inequality in the United States. I don’t know what Saez’s politics are like, but his research has been employed as devastating artillery in the ongoing economic policy wars fought between liberals and conservatives.

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.

About damn time other economics departments started getting the shiny medals.

Leonard is clearly pumped about this. I was, too, when I found out about each of these awards. At the same time, however, there is no guarantee that Stockholm will not revert back within 5 years and give another Nobel to the Chicago school. I think we need many more data points (and from other sources) before we can term this “the great crash.”

By the same token, I would certainly welcome this crash if it were to happen. Then, liberal-Keynesian economics can become the orthodoxy, potentially crowding in schools of thought currently viewed as heterodox. This crowding-in would likely have to begin with the post-Keynesians, who have a story about the crisis that is very palatable to the mainstream left (see Thomas Palley). Perhaps it could then extend to more radical political economy, even neo-Marxism. Now, it’s time to stop before I get over-excited.

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