Earlier this week, Dubner linked to a terrific New Yorker piece by John Cassidy, which explores the state of the “Chicago School.” Following up, Cassidy has posted some very revealing interview transcripts.
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.)
Read them all, and come to your own judgments:
and 
. You can also watch it on 
Gene Fama and I seem to share a lot of the same ideologies.
I think a lot of what Fama says rings true. I can see how people can get frustrated with his interview… he mentions several times that he thinks most of the proposed fixes / regulation plans are bad, but when asked about what his solution would be, he declines to state. On one hand, it’s a very protected state of being… he’s set up to get the “I told you so” finger pointed if someone’s idea fails, and doesn’t offer his own proposal to be subject to the same potential attack.
But I think there are still some valid points underneath this attitude. Firstly, markets are incredibly complex, complicated machines built using intuitive and simple foundations, such as pure efficiency and the taking advantage of opportunities. Secondly, people are quick to jump on bandwagons when it comes to those hybrid political-economic discussions. A lot of misinformed and unprepared “experts” go on TV for 2 minutes and talk about the recession and, depending on what channel and what message is being sent, people believe them and it can be very difficult to show them they’ve made a mistake.
This latter point is Fama’s reason for not wanting to offer concrete ideas for solutions to this and future recessions until he has done reasearch enough to be comfortable. I can understand why someone may view this as arrogant, but then that someone should ask himself why he would demand an explanation and solution proposal that *isn’t* well thought-out and researched.
Anyone who thinks that the subprime mortgage market wasn’t being heavily subsidized by the Federal government hasn’t been paying attention. The government wanted more of certain types of people (for whatever reason) to own real estate and they subsidized risk and flexed their muscles to “encourage” financial institutions to lend in the right directions to make this happen.
Therefore the real estate market and by extension all markets connected to it were not “free” or “unregulated” by any stretch of the imagination. The amount of active rules, regulations, acts and mandates pertaining to residential mortgage lending on the books RIGHT NOW is bind bending. Google away.
Saying that this credit/real estate induced financial crisis repudiates free market theory or The Chicago School and somehow argues for even more regulation and government control simply defies common sense. Yeah, I think we need more cowbell.
Efficient markets? Yeah sure but supply vs. demand controls the short term and value controls the longer term. All markets are perfectly efficiency in the same way that in the long term we’re all dead. Oftentimes there is information asymmetry and almost always information is well disseminated but perceived differently by different parties.
Not surprising that there would be some cranky responses from U of C economists with much of the interview focusing on whether U of C economists have been full of it all these years. Still a very interesting series of discussions, from both academic and public policy-making perspectives.
The simplistic policy arguement — something went wrong with private markets in Sept 2008 so the govt has to come in and fix it all — can easily end up being a prescription for over-reacting in the other direction. Many thanks to all and to this site for posting the link.