Genial Dismissals, The Chicago Way

Via Freakonomics, This New Yorker piece (gated) by John Cassidy, which explores the state of the “Chicago School.”  From Stephen Dubner:

Richard Posner, unsurprisingly, is the hero of the article. But Fama, as Cassidy notes, was “genial” in his dismissal of Posner’s analysis; and Fama’s “equanimity was unshaken” even when discussing Krugman’s fierce criticisms. “My attitude is this,” he said. “If you are getting attacked by Krugman, you must be doing something right.”

From the article abstract:

Earlier this year, Judge Richard A. Posner published “A Failure of Capitalism,” in which he argues that lax monetary policy and deregulation helped bring on the current economic slump. Posner has been a leading figure in the conservative Chicago School of economics for decades. In September, he came out as a Keynesian. [See this New Republic article for the “coming out.” -- KDK]  As acts of betrayal go, this was roughly akin to Johnny Damon’s forsaking the Red Sox Nation and joining the Yankees. Ever since Milton Friedman, George Stigler, and others founded the Chicago School, in the nineteen-forties and fifties, one of its goals has been to displace Keynesianism, and it had largely succeeded. . . . In “A Failure of Capitalism,” Posner singles out several economists, including Robert Lucas and John Cochrane, both of the Chicago School, for failing to appreciate the magnitude of the subprime crisis, and he questioned the entire methodology that Lucas and his colleagues pioneered. . . .

In the course of a few days, the writer talked to economists from various branches of the subject. The over-all reaction he encountered put him in mind of what happened to cosmology after the astronomer Edwin Hubble discovered that the universe was expanding, and was much larger than scientists believed. The profession fell into turmoil, with some physicists sticking to existing theories, while others came up with the big-bang theory. Eugene Fama, of Chicago’s Booth School of Business, was firmly in the denial camp. He defended the efficient-markets hypothesis, which underpinned the deregulation of the banking system championed by Alan Greenspan and others. He insisted that the real culprit in the mortgage mess was the federal government. Mentions John Cochrane. Gary Becker, who won the Nobel in 1992, says that Posner and others raised fair critiques of Chicago economics. Mentions Robert Lucas and James Heckman. If the economic equivalent of a big-bang theory is to emerge, it will almost certainly come from scholars much less invested in the old doctrines than Fama and Lucas. Mentions Richard Thaler. Raghuram Rajan, an Indian-born Chicago professor, is one of the few economists who warned about the dangers of the financial crisis. . . .

The impact of the financial crisis shouldn’t be underestimated, especially for Chicago-style economics. “Keynes is back,” Posner said, “and behavioral finance is on the march.”

As a follow-up, Cassidy has posted interview transcripts with the Chicago economists that are the subject of the piece.  Says Justin Wolfers:

All the interviews are with truly great economists. The very best come across as trying to build insight that is both rigorous and empirically relevant. But some come across as obtuse; others as arrogant; and some oblivious, or uninterested in evidence. Time and again I was surprised at how readily the interviews slipped from careful insight into personal ideology and dogmas. In each case, the interviews are revealing. (The charitable interpretation is that perhaps what they reveal is how seriously each took Cassidy’s interviews.)

Here are links to the transcripts:

                              Richard Posner

                              Eugene Fama

                              John Cochrane

                              Gary Becker

                              Jim Heckman

                              Kevin Murphy

 Raghu Rajan

Richard Thaler

Comments

[Brian Leiter]

With a couple of exceptions, one suspects these interviews are just the mirror image of what one would have heard from Soviet economists in Moscow in the 1970s discussing the difficulties of the Soviet economy--different theory, of course, but the same imperviousness to evidence and commitment to ideological purity. Pretty embarrassing.

[Kim Krawiec]

Thanks for this, Brian. Clearly, Wolfers had a similar reaction. One of the things that stuck me about the interviews (aside from the substantive economic points, obviously) was the emphasis from some interviewers on the lack of distinctiveness of the “Chicago school” today, as compared to a few decades ago. If I remember correctly, Posner, Fama, and Becker all brought this up in their interviews. Which leads me to two questions, really:

(1) Is this true? From the perspective of an outsider it seems true (or at least plausible), but I don’t know enough about the bulk of the faculties at various econ departments to judge.

(2) If it is true, is that a good thing, from the standpoint of the university and/or department? Several interviewees emphasized the “big tent” approach and intellectual diversity that they believe characterizes Chicago now, as well as the extent to which other departments have converged toward some of the original “Chicago school” beliefs and methodologies, making Chicago less distinctive than it once was. But isn’t that relative distinctiveness one reason for the “Chicago school’s” original influence?

Maybe not. But, somewhat tangentially, it made me wonder about law schools that have in one way or another “branded” themselves as distinctive in either methodology or ideology (or both). Chicago law comes to mind, of course, but so do schools like Wisconsin, Northwestern, and George Mason. Does such a distinctive identity have both benefits and costs?

[Brian Leiter]

I lack sufficient familiarity with the research that goes on in Economics and in the Business School to really comment about those units; certainly there is evidence, even in these interviews, of some diversity of opinion. The Law School is plainly more intellectually diverse than it has been in the last 40 years. Putting Richard Epstein to one side (as he is part-time), the most prominent senior faculty, like Nussbaum and Stone, are heavy-duty 'liberals.' Elsewhere in the university, my impression, from conversations, is that there is a sense of embarrassment and annoyance that the University as a whole--which includes serious scientists and distinguished humanisits--should be identified with a particular, and a particularly discredited, political ideology. Straussians are essentially gone from the University of Chicago (one remains, and he is, I am told, not much of a presence); the political theorists in Poli Sci are overwhelmingly non- or anti-Straussian. The History Department, which is excellent, has no ideological identity. So too with Linguistics and Anthropology, among many others.

Branding can have costs--I was certainly apprehensive before coming here, though it was clear after visiting that the 'brand' wasn't what it purported to be. I think George Mason has been served well by its brand--a way to distinguish a relatively new law school, that couldn't simply ride the coattails of its university. Wisconsin was, at one time, well-served by its law & society brand, but it's less clear that it is any longer. Northwestern is an interesting experiment to watch. They have cornered the market in the pseudo-science of courts (I am putting the point unfairly, obviously), and the question is where this goes. If it triumphs as a new paradigm, then NW's bet wins big time. If not...

[Kim Krawiec]

The George Mason experiment does seem to have turned out well for them so far. If any GMU faculty want to comment one way or another feel free to do so, of course.

[David Bernstein]

Kim, branding helps in some ways, hurts in others. For example, it's not like being known as a law school with a law and economics focus and an unusually high percentage of conservative and libertarian faculty is likely to help us in the U.S. News faculty survey.

But George Mason also has other strengths; in the days when Supreme Court clerks and others with the right lines of their c.v.s could write their own ticket, we were focused on publications and scholarly potential. Unlike most law schools, we have real tenure standards, that are enforced. Our appointments committee always reflects the strong academic values of the school, and, in my experience, is unusually entrepreneurial in how it identifies faculty candidates, including going outside the AALS process. We have an absence of factionalism, so we don't have to hire mediocre candidates to placate internal constituencies. We benefit tremendously from the unforced errors of our competitors. This includes the ideological blinders through which they often view excellent candidates, especially public law candidates, who don't happen to be in the liberal-left law school academic mainstream, and their herd mentality, in which many schools seem to desire only candidates that their competitor schools desire, and hire in whatever topic is trendy that year. (A couple of years ago, we hired several candidates who were ignored by the top 20 schools, though for the life of me I couldn't see how their credentials varied significantly from those candidates who were "hot" that year). And so on...

[Kim Krawiec]

"We benefit tremendously from the unforced errors of our competitors."

That's priceless. I began once or twice, at the beginning of the hiring season, a post about why faculties replicate themselves, but never got around to finishing it. Maybe I'll get around to it at the end of the season.