UChicago Economists on the Financial Crisis

In a recent post, Justin Wolfers links us to a series of interviews conducted by the New Yorker’s John Cassidy with several prominent University of Chicago economists. The financial crisis has drawn a sharp line between the “freshwater” and “saltwater” schools, which is to say between the U of C and some of the coastal schools with more liberal ideologies. While you can quibble about the geographical distinction to start with (MIT and George Mason come to mind), I think that the extent to which these schools are politicized is overestimated in the public consciousness.

Between the Economics department and the Business School, there are well over 100 economics PhD’s affiliated with the University. It would be a mistake to assume that the opinions of the old-guard permeate the research and teaching of everyone else. I can certainly say that my classes have been mostly even-handed: in macro we learn both the permanent income hypothesis (associated with Milton Friedman) and the Keynesian consumption model, and in microeconomics we covered all sorts of market failures, from asymmetrical information to externalities and public goods to concentration of market power. And in my area of interest, environmental economics, market failure is the baseline assumption made in the first class.

The reason why these interviews are so interesting is that they show that even at the top, there isn’t agreement about everything. There are also the famous personal cat-fights between some of the University’s most distinguished economists, such as when Heckman famously told fellow Nobel-prize winner Cochrane to “screw off”, or Heckman’s other spat with Steven Levitt of Freakonomics fame. But one should keep in mind that one of the most important legacies of the Chicago school is to “link theoretical research to empirical research”, as Becker says in his interview. Maybe some people got a little carried away from this view, but I think that all things considered it is alive and well at the University, and it is certainly one of the principal reasons why I am so attached to the place and its way of thinking.



~ by danplechaty on January 21, 2010.

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