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January 20, 2010
The "Chicago" School Reviewed
By Cindy Ivanac-Lillig
John Cassidy from the New Yorker magazine interviewed a number of well-known economists and asked them what they thought about the beleaguered state of the "Chicago" school of economic thought in light of the crisis. In a nutshell, this school of thought can be described as a deep belief in market efficiency. It has had a lot of offshoots in the last five decades but fundamentally, I think that faith in market efficiency describes the ethos of the movement.
The interviews are wide-ranging and interesting. In his interview, the economist Richard Posner makes the case that perhaps the hyper focus on mathematization and lack of focus on institutional detail has hurt the "Chicago" school. He goes on to explain that it was unclear how much formally trained economists knew about how modern banking and finance worked prior to this crisis! Interesting....no?
For the Posner Interview and more (Thaler, Rajan, Murphy, Heckman, Becker, Cochrane, and Fama), click here. Cassidy also wrote an accompanying piece called, "After the Blowup."
What do you think? Any "Chicago"-ites still standing?
Posted by Cindy at January 20, 2010 9:53 PM
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The merger of Macro into Micro was always A Bad Idea. Now, we also know it is Bad Policy.
Econometrics, by contrast, has thrived over the past twenty years primarily because it is used extensively in Financial Services. Which is why Heckman will always sound sanest.
The bigger question is why the econometricians haven't taken a more key role in talking about the field. Excepting Mark Thoma--who doesn't talk or write econometrics at all in his Marketwatch column, or much on his blog--the most visible voices have been development/growth people (Krugman, Jamie Galbraith) or The Standard Bearers of the Merger (Fama, Lucas, Sargent, Cochrane, and--sadly--Prescott). Oh, and Stiglitz, who one of my old professors notes wrote the same paper in 20-30 different areas: "this market is inefficient because..." (I mean this more positively than he did; if the market isn't efficient, the standard premises of economic theory are at best less applicable.)
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