David Colander and Craig Freedman
Where Economics Went Wrong
Chicago's Abandonment of Classical Liberalism
Princeton University Press 2018
New Books in American StudiesNew Books in EconomicsNew Books in FinanceNew Books in Intellectual HistoryNew Books in Peoples & PlacesNew Books in Politics & SocietyNew Books in Public PolicyNew Books Network March 11, 2019 Daniel Peris
If you are reading this, you have probably run into the “Chicago” model at some point or another, in terms of public policy, orthodox modern finance, macro or micro economics, or any other arena where theoretical abstractions about human behavior (generally but not exclusively about or derived from economics) have been turned into specific and often highly rigid and mechanistic policy guidelines. That’s the Chicago model. In Where Economics Went Wrong: Chicago’s Abandonment of Classical Liberalism (Princeton University Press, 2018), David Colander and Craig Freedman track the transition from the great Classical economists, who went to great lengths to make clear that their abstractions had little direct relevance to policy or would-be policy, to the 20th-century giants at the University of Chicago (Friedman, Stigler, Director), who found themselves responding to aggressive claims from other economists engaged in policy and politics, as well the broader context of ideological challenges to the free market system championed in the West. Their answer was a robust defense of the market and rejection of government involvement in almost all human affairs.
Colander and Freedman stay more or less neutral on the ideology; their topic is the methodology. Is abstract economic thought fit for specific policy application or not? John Stuart Mill thought not. David Ricardo and Adam Smith engaged the issue. The Chicago School said sure to policy prescriptions, especially if they countered government involvement championed by economists of different leanings. Whether or not you are an admirer of the Chicago model, you will want to make sure you understand the methodological transition that brought their Ivory Tower views into your everyday affairs.
Daniel Peris is Senior Vice President at Federated Investors in Pittsburgh. Trained as a historian of modern Russia, he is the author most recently of Getting Back to Business: Why Modern Portfolio Theory Fails Investors. You can follow him on Twitter @Back2BizBook or at http://www.