From Chicago School to just another (excellent) economics department

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Whoops, sorry. I got so caught up in a must-write-column trance today that I forgot to blog. I did briefly consider saying something about John Cassidy’s edifying and entertaining New Yorker piece on Chicago School economics, which I read while eating breakfast and making Curious Capitalist Jr.’s lunch this morning. But when I looked it up online, I discovered it’s not online. Well, not unless I could type in my subscriber number. And guess what? I have failed to memorize my New Yorker subscriber number! There is an audio interview with Cassidy available to all. And as I’m about to go work at a place that puts lots and lots of stuff behind a paywall, I really better not complain too much. But still: Frustrating!

Now I’m back home with a paper copy of the New Yorker in front of me. And the article’s still good. Cassidy talks to three sorts of Chicago scholars. There’s my buddy Gene Fama and his son-in-law John Cochrane, who by defining all the accomplishments of post-World War II financial theory down to the commonplace observation that it’s hard to outguess the market are able to argue that there’s nothing wrong with this theory. They may be right, but they also don’t have much of anything interesting or useful to say about the events of the past couple of years. They have defined themselves out of the discussion.

Then there are the old-school Chicago economists (a group that in Cassidy’s telling includes Judge Richard Posner) who have adapted their thinking in various degrees to recent events. Posner has become a sort-of Keynesian, albeit a sort-of Keynesian who continues to drive real Keynesians bonkers. Posner’s buddy and co-blogger Gary Becker hasn’t gone quite that far, but does manage to sound pretty moderate and reasonable in Cassidy’s article. Robert Lucas refused to talk to Cassidy, but has established a fence-straddling record of sounding moderate when e-mailing with the likes of me and unrepentant when talking with the likes of Amity Shlaes.

Finally, there’s the majority of today’s Chicago economics faculty, an assortment of behavioral economists, freakonomists, financial-plumbing specialists and others who, while perhaps a bit more free-market-oriented than their counterparts at Harvard or MIT, no longer really constitute an ideological bloc. Posner says at the end of Cassidy’s piece that “probably the term ‘Chicago School’ should be retired,” and probably he’s right. Chicago has become just another top economics department, as it was before Milton Friedman, George Stigler & Co. turned it into a “School” in the 1950s. Which is sort of a mixed blessing. Chicago economics has become more reasonable. But its very reasonableness may render it less influential.

By the way, and I’m starting to feel a little guilty about this, I still haven’t read Cassidy’s new book. When I got the galley months ago I read a few pages and it was a bit like seeing a ghost. They covered some of the same territory that I do in Myth of the Rational Market, and they did it really well. Frighteningly well. So ever since then I’ve been afraid to read the whole book. I promise to get over this fear at some point.

Update: More on the topic here.