Throughout the third quarter of the twentieth century, Friedrich von Hayek (especially) and Milton Friedman (to a certain degree) ensured that the Chicago economics program did not ignore political economy, thus guaranteeing that a suitably cautious and suspicious judgment about the behavior of political markets influenced the overall research agenda of the Chicago School. In this respect, Chicago clearly distinguished itself from all the major Saltwater economics programs where the Keynesian, Arrovian nostrum that government is the impartial servant of the public good was the sine qua non of all economic discourse.
In saying this, by no means do I infer that Chicago’s understanding of the political process was ever close to being sound. Neither Hayek nor Friedman kept abreast of the public choice revolution that emanated from Britain during the late 1940s (Duncan Black), and spread slowly across the United States during the late 1950s and 1960s (Anthony Downs, James Buchanan, Gordon Tullock and Mancur Olson). The concept of Homo Politicus was far from center-stage in their scholarship. Essentially, neither maestro had a theory of government behavior comparable to their excellent theories of private market behavior. And that always constituted a serious fault-line in Chicago economics, significantly weakening the School’s defense of free markets against the all-but universal challenge from the Saltwater academies that private markets typically fail.
Yet, scholars of such experience and erudition could not be unaware of the dangerous reach of politics. Hayek had fled central Europe for the comparative safety of England during the 1930s as national socialism, fascism and communism marched across that benighted Continent. His seminal book, The Road to Serfdom (1944) drew upon his own experiences of those dreadful doctrines, to warn the West where not to go in the aftermath of World War II. Friedman, the son of Russian Jews who had fled Tsarist pograms to reposition themselves in the New World by the good fortune and grace of sweatshops, had no instinctive love of government. Friedman’s own experience advised him that government (not the private market-place) is always the principal source of discrimination against immigrant minorities, even in a country that is almost entirely composed of immigrants. Ban the sweatshops, and commit penniless new immigrants to begging on the streets, or to death by pestilence and/or starvation.
Two quotes, one from each, underline their instinctive distrust of the state:
“The principle that whatever government does should be agreed to by the majority does not therefore necessarily require that the majority be morally entitled to do what it likes. There can clearly be no moral justification for any majority granting its members privileges by laying down rules which discriminate in their favour. Democracy is not necessarily unlimited government. Nor is a democratic government any less in need of built-in safeguards of individual liberty than any other. It was, indeed, at a comparatively late stage in the history of modern democracy that great demagogues began to argue that since the power was now in the hands of the people, there was no longer any need for limiting that power. It is when it is contended that ‘in a democracy right is what the majority makes it to be’ that democracy degenerates into demagoguery” F.A. Hayek, The Constitution of Liberty, 1960
“The preservation and expansion of freedom are today threatened from two directions. The one threat is obvious and clear. It is the external threat coming from the evil men in the Kremlin who promise to bury us. The other threat is far more subtle. It is the internal threat coming from men of good intentions and good will who wish to reform us. Impatient with the slowness of persuasion and example to achieve the great social changes they envision, they are anxious to use the power of the state to achieve their ends and confident of their own ability to do so. Yet if they gained the power, they would fail to achieve their immediate aims and, in addition, would produce a collective state from which they would recoil in horror and of which they would be among the first victims. Concentrated power is not rendered harmless by the good intentions of those who create it.” M. Friedman, Capitalism and Freedom, 1962.
And then the great Men were gone. Knowledge coupled with wisdom about politics blew out, and ignorance coupled with naivety about politics swept in, through the corridors of the Chicago School. Inevitably, the rot started with Stigler, who had maintained a cautious disrespect for government and regulation while working under the vigilant classical liberal eyes of Friedman. Stigler’s 1962 and his 1971 papers on regulatory failure constituted the basis for major intellectual advances by Sam Peltzman and others.
Stigler’s tendency towards deconstruction, however, began to embrace the political system as the 1980s advanced, and as he became increasingly unwilling to envisage any role whatsoever for economists in the process of policy reform. Ultimately, Stigler became a caricature of himself, advancing the notion that what is is efficient in increasingly unacceptable formulations. Surely his final thoughts on this matter, published postumously in 1992 in The Journal of Law and Economics, must rank high in the pantheons of stupidity published by any top-ranked journal of economics:
“ Tested institutions and practices found wanting will not survive in a world of rational people. To believe the opposite is to assume that the goals are not desirable: who would defend a costly practice that produces nothing? So I would argue that all durable social institutions, including common and statute laws, must be efficient.” G.J. Stigler, ‘Law or Economics’, Journal of Law and Economics , October 1992
Inevitably where Stigler regressed, Gary Becker was sure to follow. And Becker surely lived down to expectations, producing in 1983 and 1985 two articles on interest groups that challenged one of the best established tenets of public choice, namely the generally supported hypothesis of Mancur Olson that interest groups, plagued by problems of collective action, distort the political process by their interventions and contribute greatly to the decline and fall of nations. Not so, says Becker, as the following quotation clearly indicates:
“Policies that raise efficiency are likely to win out in the competition for influence because they produce gains rather than deadweight costs, so that groups benefited have the intrinsic advantage compared to groups harmed. Consequently, this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful by showing that both are produced by competition among pressure groups for political favors.” G.S. Becker, ‘A theory of Competition Among Pressure Groups for Political Influence’, Quarterly Journal of Economics August 1983
With intellectual leadership of such low calibre, it is not surprising that Chicago political economy took a downward spiral throughout the final quarter of the twentieth century. With new and younger faculty members increasingly naive about politics – Robert Lucas and Lars Hansen barely allow government to enter into their models except as some abstract G variable, and Richard Posner remains a complete naif about the workings of political markets - it was inevitable that Chicago economics would stand idly in the wings as the 2008 financial crisis unfolded and that most of its faculty would run for cover as the political storm unfolded. Not everyone, of course, as I shall outline in tomorrow’s column. A disappearingly few Remnants still remain. And the odd Benedict Arnold still wanders up and down the corridors of a once-great free market economics program.
Tags: all durable laws are good laws, interest groups promote the public interest, naivety about politics in the Chicago political economy program, Stigler and Becker lead the way, what is is efficient
April 25, 2010 at 8:54 pm |
Hayek’s graduate seminar translated Mancur Olson’s _The Logic of Collective Action_ in the mid 1960s, and he clearly seems to be familiar with the work of James Buchanan.
The idea that Friedman didn’t know what his brother-in-law Aaron Director was doing at the Journal of Law & Economics at the U. of Chicago strains credibility.
And many of these “public choice” people were active in Hayek & Friedman’s Mont Pelerin Society.
So your statement here is not particularly credible:
“Neither Hayek nor Friedman kept abreast of the public choice revolution that emanated from Britain during the late 1940s (Duncan Black), and spread slowly across the United States during the late 1950s and 1960s (Anthony Downs, James Buchanan, Gordon Tullock and Mancur Olson). ”
Friedman, of course, wrote a whole book giving his popular version of “public choice” (_The Iron Triangle_).
April 25, 2010 at 9:04 pm |
But that’s the rub, isn’t it?
State power sits there waiting for just these types of men; men who are impatient or evil or both.
Both these characteristics are unsavory, dishonorable and contemptible in men.
Yet, we honor them in the State and with the State.
April 25, 2010 at 11:57 pm |
“Everything in the State, nothing outside the State, nothing against the State”
It’s it scary to think that today, some 50+ years since the fall of Italy and Germany, Liberals still like that idea. Look at the how the Tea Party is being treated by the Statists in Washington and in the Intelligentsia.
April 25, 2010 at 9:47 pm |
Greg:
Your points are well made and I may have exaggerated somewhat about their lack of knowledge of public choice. But not too much. Friedman himself commented in the 1990s that he had not been aware of the public choice explanation why his monetary rule was never adopted until well after Jim Buchanan received the Nobel Prize. Hayek, I believe, was thinking (not unwisely) on a much grander scale than ‘politics as it is’. He was much too nice a gentleman to understand how democratic politics actually works. Unfortunately, ‘politics as it is’ has crushed down on his great wisdom, as we are seeing at this time.
My remarks should not be taken to demean the contributions of these two great scholars. They just explain why they were both blind-sided a bit by the failure of democracies to respond long-term to their undoubted wisdom.
Black Flag also makes a great point. The system only has to slip occasionally to allow evil men to do their worst: FDR, Johnson, and Obama in postwar US. Attlee, Wilson and Brown in the UK. The harm done is then all but irreversible, by those why try: Reagan in the US, Thatcher in the UK.
April 25, 2010 at 11:56 pm |
Charles, thanks for clarifying. I think we are the same page, esp. re Hayek.
He talked about “the worst getting to the top” but he always pretended as if he was interacting with a community were such people weren’t to be found, — and his arguments assumed lack of knowledge, not lack of good will or selflessness. Hayek didn’t start were Madison and Hume started — designing institutions with every man assumed a knave.
April 26, 2010 at 12:01 am |
I think most academic institution now, are running on the reputations of years past. Chicago, Harvard, Princeton and Columbia are the foremost on my mind. I think the same care you make against Chicago can be made at any of the other “top schools.” I mean Bush and Obama came from the “top schools” right?
I’m very cynical when it comes to academia in general.
May 2, 2010 at 7:59 pm |
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