The great crash of the “Chicago school” of economics

The heirs of Milton Friedman used to win all the big prizes. But the last six months have been a serious bummer for the prophets of free market fundamentalism.

Topics: U.S. Economy, Globalization, How the World Works, Economics, Paul Krugman,

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. I’m talking hard, cold, quantifiable facts: Neither themost recent  Nobel prize for economics nor the John Bates Clark award given to the best economist under the age of forty went to a card-carrying member of the “Chicago School.”

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. And the John Bates Clark award, up until this year, was only given out every other year, which makes one’s chances of grabbing one even tougher. Still, for the University of Chicago, these awards have practically become a birthright. No other econ department has racked up nearly so many.

Don’t take my word for it: Here’s the University of Chicago, hyping itself:

Since 1969, when the Nobel Prize in economic sciences was first awarded, twenty-four recipients of that prize have been faculty, students, or researchers in the Department of Economics, Law School, or Graduate School of Business (GSB) at the University of Chicago, including Milton Friedman and George Stigler. Five Nobel laureates are currently members of the department: Gary S. Becker, Robert W. Fogel, Robert E. Lucas, Jr., James J. Heckman, and Roger B. Myerson. In addition, four of the six recipients of the American Economic Association’s Walker Medal were members of the faculty (J. M. Clark, F. H. Knight, Jacob Viner, and T. W. Schultz). The John Bates Clark Medal has been awarded to five Chicago economists: Milton Friedman, Gary S. Becker, James J. Heckman, Steven Levitt, and Kevin M. Murphy. Since World War II, the department has had, relative to its size, a larger number of faculty than any other serving as presidents of the American Economic Association. Former faculty members and students currently hold leading positions as economists inside and outside academic life.

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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.

Andrew Leonard
Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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