One way we laymen understand economics and how it affects our times is to think of it in schools. The clash between these schools– between Keynesians and Freidmanites, Harvard and Chicago, fresh and saltwater, free markets and countervailing powers, Roosevelt and Reagan–often become heated and personal giving economics the same scandalous, slap-down fascination as the Leno-Conan conflict. John Cassidy’s series of interviews with free market, libertarian Chicago School economists (online at The New Yorker), prompted by the defection of judge, law professor and, as Cassidy puts it, “a leading figure in the conservative Chicago School of economics” Richard Posner is particularly revealing. Posner’s book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression, went against the pillars of Chicago economics by blaming the 2007-2008 slump on deregulation and questionable monetary policy. Most of his Chicago colleagues have not approved.
The latest interview to go up, with Eugene Fama, father of the “efficient market hypothesis,” shows that the champions of financial deregulation are neither responsible or repentant about the chaos their ideology has wrought. Under Cassidy’s persistent questions, Fama defends his theories in light of the market slump, denies that “bubbles” (like the housing bubble) are a real phenomenon (“They have to be a predictable phenomenon,” he argues), and explains things away by saying that the recession caused the credit crisis and not the other way around. In something of a backpedal, he even claims he suggested there was no such thing as bubbles. And he seems to take delight in trashing Paul Krugman who, of course, has done some trashing of him. He defends the evil Milton Friedman and dismisses Posner by saying, “He’s not an economist.”
This kind of I-didn’t-do-it-and-you-can’t-prove-it argument from well-known economists enables certain politicians to stick to their ideologies and to keep the “government-bad” agenda in front of the public courtesy a gullible, privileged-class media, ensuring that little or nothing will be done to correct the problems that got us into this economic mess. What the world needs are more thinkers like Posner who aren’t afraid to change, who aren’t threatened by what’s in front of their faces. Denial might not be a river in Egypt, but it certainly runs through Chicago.–Cabbage Rabbit
UPDATE: Casey B. Mulligan’s attack against the minimum wage increase in today’s “Economix” blog in The New York Times shows how Chicago School economists are not just in denial but continue to attack the working class in behalf of their pro-market ideology. Mulligan’s argument is based on a questionable relationship between full-and-part time employment and the choice employers have regarding the benefits of sustained and increasing productivity vs. cost savings through lay offs (or choosing other ways to achieve them). No where is there an actual figuring in of how current recessionary trends might have affected the data, or– worse–the dreary state of survival workers face, especially those with families, at even a few dollars above the niggardly salary that’s called minimum wage. This kind of what’s-best-for-business-is-best-for -workers thinking has a bad historical track record.