The Chicago School

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pages: 298 words: 95,668

Milton Friedman: A Biography by Lanny Ebenstein

"Robert Solow", affirmative action, banking crisis, Berlin Wall, Bretton Woods, business cycle, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Ponzi scheme, price stability, rent control, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

Chamberlin had written a chapter on the Chicago School...in 1957, the earliest such explicit essay I have found.”3 Chamberlin’s chapter indicates that the idea of the Chicago school that later became prominent was not fixed in 1957. According to Chamberlin, the Chicago school “believes in ‘competitive theory,’ but such a belief is widely held and would not in itself distinguish a Chicago school. It is distinguished by the zeal with which the theory of monopolistic competition has been attacked.... I shall therefore call it the Chicago School of Anti-Monopolistic Competition.”4 Although criticism of the theory of monopolistic competition—the view that businesses are best considered to be monopolies and are able to obtain monopoly profits and charge monopoly prices—was certainly part of the Chicago school approach, in part through the work of Aaron Director, this was by no means the whole of what the Chicago school later became known for.

Writing in his memoirs about the first meeting of the Mont Pelerin Society, a group of libertarian-oriented academics and others, in 1947, he quoted journalist John Davenport as saying that these participants included a “sprinkling of what became known as the Chicago School”13—that is, they were not known as the Chicago school yet. The Chicago school of economics is largely the Friedman school of economics; his positions and views are those associated with the school. Stigler wrote in his autobiography that the “origin of the school can be identified only if the central theses of the school are known. They were two: a policy position and a method of studying economics. The policy position was the more commonly recognized element of the school, and clearly Milton Friedman... was the primary architect.” According to Stigler, Friedman influenced the policy positions of the Chicago school in these areas: “He revived the study of monetary economics, which had become moribund.

He provided much of the energy and drive to the interaction among members of the Chicago economics department, business school, and law school that came to be known as the Chicago School.” This would indicate that Friedman himself sometimes expresses the view that the phrase “Chicago school” was not used much before the middle to late 1950s. H. Laurence Miller, “On the ‘Chicago School of Economics,’” Journal of Political Economy (February 1962), sees a major division between Friedman and earlier Chicago economists: “The way in which Friedman and other modern Chicagoans concentrate their attack on government interference with the market represents a major departure from the earlier Chicago position” (p. 67). Also see in the same issue Stigler’s “Comment” and Martin Bronfenbrenner’s “Observations on the ‘Chicago School(s).’” Bronfenbrenner humorously wrote: I never heard of any “Chicago School” until I left Chicago....


pages: 128 words: 38,847

The Curse of Bigness: Antitrust in the New Gilded Age by Tim Wu

AltaVista, barriers to entry, collective bargaining, corporate personhood, corporate raider, creative destruction, Donald Trump, income inequality, Johann Wolfgang von Goethe, Joseph Schumpeter, Kickstarter, move fast and break things, move fast and break things, new economy, open economy, Peter Thiel, price discrimination, road to serfdom, Robert Bork, Silicon Valley, Snapchat, The Chicago School

The 1912 election and the contrasting approaches of it are the subject of much writing, but an accessible and focused look at the antitrust themes of the elections is in Dan Crane’s “All I Really Need to Know About Antitrust I Learned in 1912” in the Iowa Law Review (2015). The best way to learn about the Chicago School of antitrust is by reading Robert Bork’s The Antitrust Paradox (1978). Another lively read is Richard Posner’s “The Chicago School of Antitrust Analysis,” in volume 127 of the University of Pennsylvania Law Review (1979). Among the many critiques and reactions to the Chicago School are Robert Pitofsky’s classic “The Political Content of Antitrust,” in the same volume, and another early and influential critique of the “efficiency interpretation” of the Sherman Act is Robert Lande’s “Wealth Transfers as the Original and Primary Concern of Antitrust,” volume 34 of Hastings Law Journal (1982). A volume edited by Pitofsky, How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S.

In other words, they began with a presumption that antitrust was unnecessary, based on the laissez-faire idea that problems work themselves out, and most of the time we live in the best of all possible worlds. The Chicago School struck some important and worthy blows. Director encouraged McGee, then a graduate student, to study “predatory” pricing in the Standard Oil case, and if McGee’s historical work has been questioned since, it was worth asking when government should be challenging the strategy of lowering prices to defeat competitors, given that lower prices are also a means of competing on price. Perhaps Chicago’s most successful shots, however, were taken at the Supreme Court’s categorical, or per se, condemnation of “vertical agreements”—that is, agreements between producers and retailers. Total bans on such arrangements were hard to justify, and even Louis Brandeis was among the critics of them. Vertical-agreement rules would prove the easiest targets for the Chicago School’s attack.

Ward Author photograph by Miranda Sita Printed in the United States of America The Curse of Bigness Antitrust in the New Gilded Age For Richard Posner, who taught me to think without fear. CONTENTS Introduction Chapter One The Monopolization Movement Chapter Two The Right to Live, and Not Merely to Exist Chapter Three The Trustbuster Chapter Four Peak Antitrust and the Chicago School Chapter Five The Last of the Big Cases Chapter Six Chicago Triumphant Chapter Seven The Rise of the Tech Trusts Conclusion A Neo-Brandeisian Agenda Acknowledgments Further Reading Notes Introduction We are four decades into a major political and economic experiment. What happens when the United States and other major nations weaken their laws meant to control the size of industrial giants?


pages: 317 words: 87,566

The Happiness Industry: How the Government and Big Business Sold Us Well-Being by William Davies

1960s counterculture, Airbnb, business intelligence, corporate governance, dematerialisation, experimental subject, Exxon Valdez, Frederick Winslow Taylor, Gini coefficient, income inequality, intangible asset, invisible hand, joint-stock company, lifelogging, market bubble, mental accounting, nudge unit, Panopticon Jeremy Bentham, Philip Mirowski, profit maximization, randomized controlled trial, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, science of happiness, selective serotonin reuptake inhibitor (SSRI), sentiment analysis, sharing economy, Slavoj Žižek, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Spirit Level, theory of mind, urban planning, Vilfredo Pareto

This cocoon in which the university sits was a significant factor in the development of the ‘Chicago School’ of economics, which was instrumental in the design and implementation of the neoliberal policy revolution. Chicago itself is 700 miles from Washington, DC, and 850 miles from Cambridge, Massachusetts, the homes of Harvard and MIT, the original bastions of American economics. Not only were Chicago School economists tightly congregated in Hyde Park, they were also several hundred miles from the core of the political and academic establishments. They had little choice but to seek debate with one another, and for three decades after the end of World War Two, they engaged in this with a rare fury. The scholars who became known as the Chicago School began to cluster around the leadership of economists Jacob Viner and Frank Knight during the 1930s.

In their hostility to state intrusions in markets, Friedman and company had largely just assumed that free markets were intrinsically superior on principle. But paradoxically, this belief also committed them to certain types of state intervention, namely regulation and competition law, which would ensure that the market maintained its correct form. Coase’s brilliance was to spot within the Chicago School position a final remnant of metaphysical speculation that they themselves were not aware of. Up until this point, the Chicago School still assumed that markets needed to be open, competitive, run according to certain principles of fairness, or else they would become submerged under the weight of monopolies. Markets needed ground rules if they were to match up to the ideal of being a space of individual freedom. This meant that they still required authorities capable of intervening, once competitors ceased to play fair or grew too powerful, and the market started to ‘fail’.

In the most controversial episode of a controversial career, Friedman visited Chile in spring 1975 to offer advice to the autarchic Pinochet regime. For a man who professed anarchist sympathies, this engagement with a military dictator appeared hypocritical to say the least. Friedman simply defended himself as someone who was in pursuit of scientific knowledge and willing to share it with whomever was interested. In any case, the Chicago School complaint against governments was not that they had too much power, but – à la Bentham – that they used it in an unscientific fashion. In short, policy-makers needed to listen to economists more closely, a view that reveals the most distinctive Chicagoan trait of all: the fundamental belief that economics is an objective science of human behaviour which can be cleanly separated from all moral or political considerations.


Building and Dwelling: Ethics for the City by Richard Sennett

Buckminster Fuller, car-free, clean water, cognitive dissonance, complexity theory, creative destruction, dematerialisation, Deng Xiaoping, double helix, Downton Abbey, East Village, en.wikipedia.org, Frank Gehry, ghettoisation, housing crisis, illegal immigration, informal economy, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Joseph Schumpeter, Kickstarter, Mark Zuckerberg, Masdar, mass immigration, means of production, megacity, new economy, Nicholas Carr, Norbert Wiener, open borders, place-making, plutocrats, Plutocrats, Richard Florida, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, the built environment, The Chicago School, The Death and Life of Great American Cities, the High Line, The Wealth of Nations by Adam Smith, urban planning, urban renewal, Victor Gruen

This mechanistic view of the ville came from people who had anything but a mechanistic view of the cité. The lack of interest the Chicago School had in three-dimensional, built form is surprising. By the early decades of the twentieth century, Chicago became the world’s capital of modern architecture; it was home to Louis Sullivan and Frank Lloyd Wright, as well as to Daniel Burnham, the inheritor of Frederick Law Olmsted’s work as a landscape designer. Burnham’s Chicago Plan of 1909 guided Chicago’s city fathers in preserving open spaces along the giant lake edging the city. Unlike Haussmann’s preoccupation with façades, late nineteenth-century architects in Chicago concerned themselves with tying interiors to exteriors. All reasons to notice the built environment, yet the Chicago School did not notice; it could not see buildings as bearing on its own investigations, nor connect its own rich sense of cité to a parallel complexity in the ville.

Robert Park worried that his students weren’t listening to people who had a less stereotypical, more complex understanding of their own race or class; these complex thoughts and feelings can cause someone to fall silent. Charlotte Towle thus obliged her interviewers to learn how to be silent themselves, in order to encourage their subjects to struggle for words; the training in the Chicago School of young interviewers involved letting silences hang in the air. Florian Znaniecki recognized that neophytes are made uncomfortable by the silence of a subject, and are tempted to jump in with statements like, ‘In other words, Mrs Schwarz, what you mean to say is…’. Znaniecki counselled, don’t put words in their mouths; to do so is the cardinal sin of sociology. Since the time of the Chicago School, techniques have evolved for spotlighting meanings which are left inarticulate or contradictory; listening for cognitive dissonances figures in the education of the modern ethnographer. The fact that a subject contradicts him- or herself cannot be taken as a sign he or she is stupid or ignorant; rather, following Bakhtin, it is the context of the speech act that is crooked and contradictory.

To the north and west of the university, Chicago had become a thriving, mixed, modern city. It served as a railway hub for the whole United States, and contained much more varied industries than did Manchester in the nineteenth century. European workers found refuge here up to the 1920s, when European emigration declined; in that post-war decade African Americans began migrating up from the old, racially paralysed Confederate states. The Chicago School wanted to find out what it was like to dwell in such a complex place. Its founder, Robert E. Park, worked for twelve years as a crusading journalist, then studied with the philosopher and psychologist William James at Harvard, receiving an advanced degree in 1899. Afterwards he went to Berlin to study with Georg Simmel, seeking to tie the theorist’s views about mentalities to empirical research.


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

The economist John Maynard Keynes once said, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” He should have included defunct law professors. The state we find ourselves in today can be traced back to the economists of the Chicago School. We would not have highly concentrated industries if it were not for Robert Bork and the Chicago School. Like all revolutions, an organized group of ideologues developed the ideas and spread them zealously. The Chicago School, led by Milton Friedman and George Stigler, was the vanguard of attack against antitrust laws. The great irony is that they decried monopolies and concentration of power, but in practice they created all the conditions necessary for them. Friedman and Stigler started out as proponents of antitrust, but they came to dislike any form of state regulation.

They are dangerous and horrible creatures, but not real, and therefore not a concern. Anything that looks like a monopoly merely dominates industries because of greater “efficiency.” Even if it appears to be a monopoly, you shouldn't be worried about it because it won't persist due to competition. Also, keeping a monopoly is costly and difficult, so therefore impossible. For the Chicago School, if it looks like a monopoly, walks like a monopoly and quacks like a monopoly, it is probably just your imagination. Not only did the Chicago School not believe in monopolies, they didn't believe in practically anything. Collusion between companies? It couldn't happen. There were too many incentives to cheat and avoid cooperation. Even if it did happen, it wouldn't last. Cartels were highly unstable anyway and would break apart. They could only work with very few players.

Reasonable estimates are that only 20% of collusion cases are caught, which would place the global cost from higher prices by cartels as high as $600 billion a year.9 Some economists sincerely believe that cartels and collusion are impossible. In particular, the ultra-free-market Chicago School of economics argued that cartels and collusion were almost impossible because it is difficult to coordinate competitors, competitors would be prone to cheat, and new entrants would come in to compete with the cartel. All of these ideas, however, were not based on any evidence and were simply conjured out of thin air by theory. The Chicago School's view on cartels flies in the face of decades of evidence and billions of dollars of fines. According to The Economist, in the past few years, “international conspiracies have been busted in fields as diverse as seat belts, seafood, air freight, computer monitors, lifts and even candle wax.” Cartels that fix prices and reduce supply often persist for years. Furthermore, cartels don't necessarily break down because it is difficult to coordinate price fixing.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"Robert Solow", Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

In an op-ed article in the Financial Times, Rajan defended the upside of financial speculation, blaming the harmful fallout on the Congress and the Fed for distorting market incentives. Elsewhere, the Stanford economist Gregory Rosston was quoted as saying, “I don’t think (recent events are) necessarily a repudiation of the Chicago School of economics as personified by Alan Greenspan, but it definitely shows there is some role for regulation in society.” Actually, all that was revealed was the unabashed ignorance of history on the part of Rosston, since Alan Greenspan was never a member in good standing of the Chicago School, but rather an acolyte of the Ayn Rand cult, who had been awarded a belated PhD by NYU in 1977 after serving as chairman of the Council of Economic Advisors under Gerald Ford, and who subsequently parlayed numerous right-wing political connections into elevation to his position as chairman of the Federal Reserve from 1987 to 2006.

The television series funded by the Neoliberal Thought Collective on PBS, Free to Choose, provides many more. 129 Mirowski, ScienceMart; Thorpe, “Political Theory in STS”. 130 Hayek, “The Intellectuals and Socialism”; Burgin, History, p. 194; Hayek, Law, Legislation and Liberty, chapter 2. 131 The response of Caldwell, “The Chicago School, Hayek, and Neoliberalism,” to this criticism is a good example of the unwillingness to explore this issue. 132 Hayek, Law, Legislation and Liberty, pp. 45–46. 133 Ibid., p. 51. 134 Zingales, A Capitalism for the People. 135 Conversation among Friedman, Director, and Craig Freedman, August 1997; reported in Freedman, Chicago Fundamentalism, p. 12. 136 Stigler, “The Intellectual and His Society,” p. 312. 137 “The large mass of the public does not find it economically worthwhile to become well acquainted with the effects of policies which have small harmful effects upon each non-beneficiary.” (George Stigler, unpublished paper “Schools in Science,” quoted in Nik-Khah, “George Stigler, the Graduate School of Business, and the Pillars of the Chicago School,” p. 140) 138 Some evidence supports Stigler’s position: in a number of countries, it was explicitly socialist parties that introduced some of the most critical neoliberal reforms.

Thus there are at least two imposing obstacles confronting anyone seeking a deeper understanding of neoliberalism: the fog thrown up around the term “neoliberalism” and attendant doctrines by the participants themselves, in pursuit of their own political unification ambitions and projects with other movements on the right; and the fact that the tenets of neoliberal doctrine evolved and mutated over the postwar period.41 The ten-plus commandments of neoliberalism were not delivered complete and immaculate down from the Mont in 1947, when the neoliberals convened their first meeting of the MPS. Nor can one reliably reconstruct it from a small set of “Hayekian encyclicals,” as Jamie Peck so aptly puts it. In fact, if we simply restrict ourselves to Mont Pèlerin itself (and this is unduly narrow), there rapidly precipitated at least three distinguishable sects or subguilds: the Austrian-inflected Hayekian legal theory, the Chicago School of neoclassical economics, and the German Ordoliberals.42 Hayek himself admitted this in the mid-1980s, when he warned of “the constant danger that the Mont Pèlerin Society might split into a Friedmanite and Hayekian wing.”43 An impartial spectator could observe ongoing tensions between them, but also signs that they eventually cross-fertilized each other. It takes a rather bulky Baedeker to keep it straight; another thing that surely wards off the merely curious outsider.


pages: 511 words: 132,682

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants by Maurice E. Stucke, Ariel Ezrachi

affirmative action, Airbnb, Albert Einstein, Andrei Shleifer, Bernie Sanders, Boeing 737 MAX, Cass Sunstein, choice architecture, cloud computing, commoditize, corporate governance, Corrections Corporation of America, Credit Default Swap, crony capitalism, delayed gratification, Donald Trump, en.wikipedia.org, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Google Chrome, greed is good, hedonic treadmill, income inequality, income per capita, information asymmetry, invisible hand, job satisfaction, labor-force participation, late fees, loss aversion, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, market fundamentalism, mass incarceration, Menlo Park, meta analysis, meta-analysis, Milgram experiment, mortgage debt, Network effects, out of africa, payday loans, Ponzi scheme, precariat, price anchoring, price discrimination, profit maximization, profit motive, race to the bottom, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Shoshana Zuboff, Silicon Valley, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Stanford prison experiment, Stephen Hawking, The Chicago School, The Market for Lemons, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Davenport, Thorstein Veblen, Tim Cook: Apple, too big to fail, transaction costs, Uber and Lyft, uber lyft, ultimatum game, Vanguard fund, winner-take-all economy

Rather than viewing ourselves as a community striving toward joint goals, we should act only in our self-interest. The government need not intervene because rational market participants primed to pursue their self-interest will prevent or quickly cure most market failures.27 The Chicago School’s economic theory assures us that the “natural laws of the market are in essence good . . . and necessarily work for the good, whatever may be true of the morality of individuals.”28 Until recently, most economic models of competition assumed that we’re purely selfish creatures—and moreover, that this is fine.29 Companies and consumers exclusively pursue their material self-interest and do “not care about ‘social’ goals per se.”30 As the Chicago School economist George Stigler wrote, when “self-interest and ethical values with wide verbal allegiance are in conflict, much of the time, most of the time in fact, self-interest theory . . . will win.”31 Karl Marx and Friedrich Engels would have agreed that “naked self-interest” would indeed prevail in a capitalist society.32 At the moment, that seems to be what’s happening.

Greed Works. President Ronald Reagan told the nation in his first inaugural address, “government is not the solution to our problem; government is the problem.” Competition and markets were his answer, and the concept of competition he was espousing was the narrow one espoused by Milton Friedman and his cohorts at the University of Chicago. In touting the power of markets to self-correct, the Chicago School theorists characterized economic competition as relentless zero-sum warfare, where some must lose in order for others to win. The Reagan administration began appointing judges who were indoctrinated with these Chicago School beliefs for important positions on appellate courts—like the US Court of Appeals for the Seventh Circuit and DC Circuit—where they could influence government policy for life.

While our focus is often on the US Supreme Court, these appellate judges can have a far greater impact on our economic and legal policies. They decide many more cases on many more topics than the Supreme Court. These appellate decisions bind not only the parties in the case, but also all the trial courts within their districts. The opinions, which set precedents, also affect the enforcement agencies and other litigants, who rely on these judicial opinions. And so the Chicago School–ed jurists went to work. “Warfare,” wrote Seventh Circuit Judge Frank H. Easterbrook (who got his law degree from the University of Chicago) in one legal opinion, “is competition.”22 Operating on this assumption, competition may involve unfair, even despicable, acts of hatred and greed among competitors. As Judge Easterbrook summarized in another opinion, “Much competition is unfair, or at least ungentlemanly; it is designed to take sales away from one’s rivals.”23 Or as he opined in another decision, “a desire to extinguish one’s rivals is entirely consistent with, often is the motive behind, competition.”24 And in yet another decision: “[t]he deeper the injury to rivals, the greater the potential benefit.”25 Needless to say, even good competition can be fierce.


pages: 273 words: 34,920

Free Market Missionaries: The Corporate Manipulation of Community Values by Sharon Beder

anti-communist, battle of ideas, business climate, corporate governance, en.wikipedia.org, full employment, income inequality, invisible hand, liquidationism / Banker’s doctrine / the Treasury view, minimum wage unemployment, Mont Pelerin Society, new economy, old-boy network, popular capitalism, Powell Memorandum, price mechanism, profit motive, Ralph Nader, rent control, risk/return, road to serfdom, Ronald Reagan, school vouchers, shareholder value, spread of share-ownership, structural adjustment programs, The Chicago School, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Torches of Freedom, trade liberalization, traveling salesman, trickle-down economics, Upton Sinclair, Washington Consensus, wealth creators, young professional

The doctrine of non-interference with the market meant, in practice, clear the track for big business. Inequalities of bargaining power, knowledge, and income were brushed aside, and the realities of monopoly, quasi-monopoly, and imperfect competition were treated as either immaterial or nonexistent.15 The Chicago School’s policy prescriptions included maximum freedom of choice for entrepreneurs and producers; minimization of taxation, welfare and government intervention; the removal of tariffs; the privatization of government services; deregulation of labour markets and the denationalization of money. Friedman was credited with being the leader of the Chicago School economists and was taken up and promoted by Hayek-inspired networks: ‘more than anyone else, he was responsible for reviving’ and popularizing free market ideas.16 For many years these free market economic ideas were considered marginal and obsolete in other universities.

Other influential nations tend to go along with free market policy prescriptions because nations are represented on the IMF by their finance ministers and central banks, and these tend to represent the financial communities and be staffed by people who have had careers, or hope to, with private financial firms and banks. In addition, economists in the bureaucracies of many countries have been trained in neo-classical theory as orthodoxy. Even in the mid-1980s, the Chicago School represented a minority economic opinion in the US. One survey of 200 industrial economists found 68 per cent were opposed to the Reagan government policies that had been promoted by the Chicago School.11 Nevertheless, this doctrine was taught in some of the most elite US universities and the graduates of these, particularly the ‘high-flying graduates 148 FREE MARKET MISSIONARIES from elite US universities such as Stanford, Harvard, and Chicago’, then went on to get government positions and became senior advisers around the world (as in Chile): part of an ‘influential network of strategically placed individuals’.12 Many of the most powerful economic policy-makers in emerging market countries received their training from one of the few top-notch business training grounds for executives in the US.

Contestability theory, or contestable markets theory, claimed that competition did not have to be real or actual for the market to keep prices down; all that was needed was the potential for competition to ensure that prices and profits did not go too high. So, according to this theory, even a monopoly could be kept in check by the potential of competition.39 Contestability theory, originally formulated by William Baumol and others, was taken up by the Chicago School and then by the Reagan administration. Contestability theory was used to favour deregulation policies for monopolies by a ‘a group of economists, in particular associated with the Bell Lab. of the American Telephone and Telegraph Company, and with the US Civil Aeronautics Board’.40 Contestability was also cited in the UK when British Telecom and British Gas were privatized as monopolies. Normally, a monopoly is thought to need regulation, to ensure prices are kept within reason and ensure good service.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

John Maynard Keynes (2006) The General Theory of Employment, Interest and Money, Atlantic Books, New Delhi: 140. 29. Alan Greenspan (2007) The Age of Turbulence: Adventures in a New World, Allen Lane, London: 124. 30. Fox, The Myth of the Rational Market: 41. 31. MacKenzie, An Engine, Not a Camera: 95. 32. Ibid: 8–12. 33. van Overtveldt, The Chicago School: 67. 34. Dan Gardner (2008) Risk—The Science and Politics of Fear, Virgin Books, London: 53. 35. van Overtveldt, The Chicago School: 291. 36. Quoted in Greenspan, The Age of Turbulence: 55. 37. Quoted in van Overtveldt, The Chicago School: 172. 38. Quoted in Fox, The Myth of the Rational Market: 269. 39. Daniel Altman “Managing Globalization: Q & A with Joseph Stiglitz” (11 October 2006) The International Herald Tribune. 40. MacKenzie, An Engine, Not a Camera: 24. 41. Kurt Vonnegut Jr (1963) Cat’s Cradle, Holt, Rhinehart & Winston, New York: 75. 42.

Quoted in Peter Watson (2000) A Terrible Beauty: The People and Ideas that Shaped the Modern Minds—A History, Phoenix Press, London: 81. 9. Philip Mirowski (2002) Machine Dreams: Economics Becomes a Cyborg Science, Cambridge University Press, Cambridge: 203, 204. 10. Johan van Overtveldt (2007) The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionised Economics and Business, Agate Books, Chicago: 9. 11. Ibid: 91. 12. Justin Fox (2009) The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street, Harper Business, New York: 252. 13. van Overtveldt, The Chicago School: 85–7. 14. Pierre Bayard (2007) How to Talk About Books You Haven’t Read, Bloomsbury, London. 15. Yergin and Stanislaw, The Commanding Heights: 89. The quote is derived from John Ranelagh’s book, (1991) Thatcher’s People: an insider’s account of the politics, the power, and the personalities, Harper Collins, London.

The University of Chicago radically changed how the world thought about economics, politics, and business, with a system based on: “belief in the efficacy of the free market as a means for organizing resources...skepticism about government intervention into economic affairs and...emphasis on the quantity theory of money as a key factor in producing inflation.”1 In the early part of the twentieth century, work in theoretical physics was centered around the Cavendish Laboratory (Cambridge, England), Göttingen (Germany), and the Institute of Theoretical Physics (Copenhagen, Denmark). Under Niels Bohr, the Nobel-prize-winning Danish physicist, and his German protégé Werner Heisenberg, the “Copenhagen Interpretation” became dominant. Generations of physicists once asked: “What is Copenhagen’s view of this?” Generations of economists now asked: “What is Chicago’s view of this?” As remote from real life as quantum physics, the Chicago School was highly influential for more than 50 years. Dismal Science Thomas Carlyle, the Victorian historian, christened economics the “dismal science.” American satirist P.J. O’Rourke described economics as “an entire scientific discipline of not knowing what you’re talking about.”2 Economics focuses on how production and financial systems work or should work. Macroeconomics focuses on growth, employment, production, inflation, and monetary and government budgetary (fiscal) policy.


pages: 470 words: 130,269

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, market fundamentalism, mass immigration, means of production, Menlo Park, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

YouTube, January 23, 2010. https://www.youtube.com/watch?v=d0nERTFo-Sk. Eichengreen, Barry, and Peter Temin. “The Gold Standard and the Great Depression.” Contemporary European History 9, no. 2 (2000): 183–207. Ekelund, Robert. Review of Austrian Economics in America by Karen Vaughn. RAE 10, no. 2 (1997): 133–38. Emmett, Ross, ed. Elgar Companion to the Chicago School of Economics. Northampton, UK: Elgar, 2010. ———. Frank Knight and the Chicago School in American Economics. London: Routledge, 2009. ———. “Sharpening Tools in the Workshop.” In Van Horn, Mirowski, and Stapleford, Building, 93–115. Endres, Anthony, and David Harper. “Carl Menger and His Followers in the Austrian Tradition on the Nature of Capital and Its Structure.” JHET 33, no. 3 (2011): 357–84. Erickson, Paul. The World Game Theorists Made.

“Otto Neurath’s Idealist Inheritance.” Synthese 103 (1995): 87–121. ———, ed. Rediscovering the Forgotten Vienna Circle. Dordrecht, Germany: Kluwer, 1991. Valdés, Juan Gabriel. Pinochet’s Economists: The Chicago School of Economics in Chile. Cambridge: Cambridge University Press, 1995. van der Linden, Marcel. “Gerschenkron’s Secret: A Research Note.” Critique 40, no. 4 (2012): 553–62. Van Horn, Robert. “Jacob Viner’s Critique of Chicago Neoliberalism.” In Van Horn, Mirowski, and Stapleford, Building Chicago Economics, 279–300. Van Horn, Robert, and Philip Mirowski. “The Rise of the Chicago School of Economics and the Birth of Neoliberalism.” In Mirowski and Plehwe, Road from Mont Pèlerin, 139–79. Van Horn, Robert, Philip Mirowski, and Thomas Stapleford, eds. Building Chicago Economics. New York: Cambridge University Press, 2011.

This proposal evolved into the Free Market Study (FMS), a three-year pilot program dedicated to the production of a popular work on free markets and economic freedom. Although Simons died in 1946 and Hayek returned to London, the FMS brought Director and Friedman back to Chicago. The Volker Fund paid Director’s salary at the Law School for five years until he could go up for tenure. One can justifiably say that Hayek laid the foundations for the Chicago School’s postwar success, since Director was the driving force behind Chicago’s economics imperialism.19 The difficulties Hayek faced in securing permanent employment in the United States were nevertheless discouraging. The Volker Fund tried to find a position for Hayek at the Institute for Advanced Studies in Princeton and the Department of Economics at Chicago in 1948, yet both declined, raising concerns about appointments funded by private donors.


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Zucked: Waking Up to the Facebook Catastrophe by Roger McNamee

4chan, Albert Einstein, algorithmic trading, AltaVista, Amazon Web Services, barriers to entry, Bernie Sanders, Boycotts of Israel, Cass Sunstein, cloud computing, computer age, cross-subsidies, data is the new oil, Donald Trump, Douglas Engelbart, Douglas Engelbart, Electric Kool-Aid Acid Test, Elon Musk, Filter Bubble, game design, income inequality, Internet of things, Jaron Lanier, Jeff Bezos, John Markoff, laissez-faire capitalism, Lean Startup, light touch regulation, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, Menlo Park, Metcalfe’s law, minimum viable product, Mother of all demos, move fast and break things, move fast and break things, Network effects, paypal mafia, Peter Thiel, pets.com, post-work, profit maximization, profit motive, race to the bottom, recommendation engine, Robert Mercer, Ronald Reagan, Sand Hill Road, self-driving car, Silicon Valley, Silicon Valley startup, Skype, Snapchat, social graph, software is eating the world, Stephen Hawking, Steve Jobs, Steven Levy, Stewart Brand, The Chicago School, Tim Cook: Apple, two-sided market, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, Yom Kippur War

A counter philosophy surfaced after the Second World War, which postulated that markets were always best at allocating resources. The “Chicago School” antitrust philosophy emerged as part of this market-driven, neoliberal worldview, arguing that concentration of economic power was not a problem, so long as it did not translate into higher prices for consumers. The Chicago School became official policy with the Reagan administration and has prevailed ever since. Perhaps it is a coincidence, but, as I’ve mentioned, the years since 1981 have seen a massive decline in new company formation (which peaked in 1977), as well as income inequality not seen since the era of Standard Oil. Three internet platforms—Amazon, Google, and Facebook—have benefited enormously from the Chicago School’s antitrust philosophy. The products of Google and Facebook are free to consumers, and Amazon has transformed the economics of distribution while keeping consumer prices low, which has allowed all three to argue successfully for freedom to dominate, as well as to consolidate.

The horizontal integration into perishables like food would have been problematic due to cross subsidies. Amazon can use its cloud services business to monitor the growth of potential competitors, though there is little evidence that Amazon has acted on this intelligence the way it has leveraged data about bestselling products in its marketplace. Google’s business strategy is a perfect example of how the Chicago School differs from the traditional approach to antitrust. The company began with index search, arguably the most important user activity on the internet. Google had a brilliant insight that it could privatize a large subset of the open internet by offering convenient, easy-to-use, free alternatives to what the web’s open source community had created. Google leveraged its dominant market position in search to build giant businesses in email, photos, maps, videos, productivity applications, and a variety of other apps.

The European Union, which still employs a traditional view of economic power, won a $2.7 billion judgment against Google in 2017 for leveraging its search and AdWords data to wipe out European competitors for its brand-new price-comparison application. The EU case was well argued and had the benefit of obvious harm, in that most of Google’s competition had disappeared in short order. Shareholders shrugged off the judgment, which Google has appealed. (In August 2018, the EU fined Google $5 billion for a different antitrust violation, this time related to the Android operating system.) The Chicago School antitrust model benefited Google and Facebook in another way: it enabled them to create markets in which they could also be a participant. Traditional antitrust rules offered companies a choice: they could create a market or be a participant but not both. The theory was that if the owner of a marketplace also participated in the market, the other competitors would be at a prohibitive disadvantage.


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When Work Disappears: The World of the New Urban Poor by William Julius Wilson

affirmative action, business cycle, citizen journalism, collective bargaining, conceptual framework, declining real wages, deindustrialization, deliberate practice, desegregation, Donald Trump, edge city, ending welfare as we know it, fixed income, full employment, George Gilder, ghettoisation, glass ceiling, Gunnar Myrdal, income inequality, informal economy, jobless men, labor-force participation, longitudinal study, low skilled workers, low-wage service sector, manufacturing employment, mass immigration, new economy, New Urbanism, pink-collar, race to the bottom, RAND corporation, school choice, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, upwardly mobile, urban decay, urban renewal, War on Poverty, working poor, working-age population, Works Progress Administration

The figures reported in this paragraph for the period 1980 to 1990 are based on tracts with at least 100 black residents. 18 quotation from Jargowsky: Jargowsky (1994), p. 18. 19 quotation from Massey and Denton: Massey and Denton (1993), p. 118. 20 segregation and a group’s overall rate of poverty increase: It should also be pointed out that whereas the growth of concentrated poverty occurred mainly among African-Americans in the large metropolitan areas in the 1970s, in the 1980s “the growth in concentrated poverty was substantially higher among non-Hispanic whites in smaller metropolitan areas like Louisville, Kentucky, and Tulsa, Oklahoma” (Pear [1993]). 21 The Truly Disadvantaged: Wilson (1987). 22 the Chicago School of urban sociology: Representative studies by those identified with the Chicago School include Robert E. Park and Ernest W. Burgess, The City (1925); N. Anderson, The Hobo (1923) and Men on the Move (1940); F. Thrasher, The Gang (1927); L. Wirth, The Ghetto (1928); H. W. Zorbaugh, The Gold Coast and the Slum (1929); R. E. L. Faris and W. Dunham, Mental Disorder in Urban America (1931); E. Franklin Frazier, The Negro Family in Chicago (1932). (These were all published by the University of Chicago Press.) 23 the studies of the Chicago School: I am indebted to O’Connor (1992) for much of the discussion to follow in this section. O’Connor correctly points out: Subsequent historical research on immigrants and the black urban experience have shown the inadequacies of the Chicago school assimilationist framework, whether as a description of the migrant experience or as a predictor of how black migrants would fare in the city.

The city of Chicago epitomizes these changes. Since the early twentieth century, Chicago has been a laboratory for the scientific investigation of the social, economic, and historical forces that create and perpetuate economically depressed and isolated urban communities. The most distinctive phase of this research, referred to as the Chicago School of urban sociology, was completed before 1950 and was conducted by social scientists at the University of Chicago. Immediately following World War I, the Chicago School produced several classic studies, many of which were conducted under the guidance of Robert E. Park and Ernest W. Burgess over the next three decades. These studies often combined statistical and observational analyses in making distinctive empirical and theoretical contributions to our understanding of urban processes, social problems and urban growth, and, commencing in the late 1930s, the nature of race and class subjugation in urban areas.

These studies often combined statistical and observational analyses in making distinctive empirical and theoretical contributions to our understanding of urban processes, social problems and urban growth, and, commencing in the late 1930s, the nature of race and class subjugation in urban areas. The Chicago social scientists recognized and legitimized the neighborhood—including the ghetto neighborhood—as a subject for scientific analysis. Chicago, a community of neighborhoods, was considered a laboratory from which generalizations about broader urban conditions could be made. The perspectives on urban processes that guided the Chicago School’s approach to the study of race and class have undergone subtle changes through the years. In the 1920s, Park and Burgess argued that the immigrant slums, and the social problems that characterized them, were temporary conditions on the pathway toward inevitable progress. They further maintained that blacks represented the latest group of migrants involved in the “interaction cycle” that “led from conflict to accommodation to assimilation.”


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Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

The result was that the concept of radical uncertainty virtually disappeared from the mainstream of economics for more than half a century. 11 The use of subjective probabilities, and the associated mathematics, seemed to turn the mysteries of radical uncertainty into puzzles with calculable solutions. And it would be at the University of Chicago that the triumph of subjective probability over radical uncertainty would be most enthusiastically celebrated. Many great economists contributed to the creation of the Chicago School, but the figure best known to a wider public was Milton Friedman, Professor of Economics from 1946 to 1977 and one of the most influential economists of the twentieth century. Friedman’s Price Theory – a Provisional Text may be regarded as the primer of the doctrines of the Chicago School. In it he wrote: in his seminal work, Frank Knight drew a sharp distinction between risk, as referring to events subject to a known or knowable probability distribution, and uncertainty, as referring to events for which it was not possible to specify numerical probabilities.

There could hardly be a sharper contrast of personalities than that between these two, both flag bearers for radical uncertainty and opponents of the application of subjective probabilities. 7 Keynes was a liberal scion of the English upper middle class, who moved effortlessly between the intellectual and agnostic world of Cambridge and the bohemian literary milieu of Bloomsbury; Knight had graduated from a small Christian college in Tennessee before attending the state university, and then completed a PhD at Cornell before taking a teaching post in Iowa. Politically conservative, he moved to the University of Chicago in 1927. Knight is often described as the founder of the Chicago School of Economics, with its resolute focus on individual rational choice and free markets. But there was a contemporary of comparable stature who took a different view. Frank Ramsey, a philosopher and mathematician who also made contributions to economic theory, was a friend and colleague of Keynes at King’s College, Cambridge. 8 His brilliant career was cut short by his death from postoperative complications at the age of twenty-six.

I’ve not referred to this distinction because I do not believe it is valid . . . We may treat people as if they assigned numerical probabilities to every conceivable event. 12 Friedman’s followers distanced themselves – at least in this respect – from Knight’s legacy. They even explained that the revered founder of the school could not have meant what he said. In an article published in 1987 in the Journal of Political Economy , the house journal of the Chicago School, Stephen LeRoy and Larry Singell explained: ‘The received interpretation of Knight’s classic risk-uncertainty distinction – as concerning whether or not agents have subjective probabilities – constitutes a misreading of Knight. On the contrary, Knight shared the modern view that agents can be assumed always to act as if they have subjective probabilities.’ 13 It is impossible to accept this assertion given Knight’s description of uncertainty and entrepreneurship.


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The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

“Liberals,” they all called themselves, sticking to the nineteenth-century, pro-laissez-faire definition that was already being expropriated in the United States by the Left. Libertarians is what we would call them today. Friedman later wrote that the Mont Pelerin meeting was “the beginning of my active involvement with the political process.”6 He had returned to Chicago to teach the year before, as had Director. Stigler made it a decade later. Hayek also moved to Chicago, but never really joined the “Chicago school” of economics he helped spawn. Instead it was Friedman who took the leading role. He built his reputation among his peers with theoretical work, as well as his famous methodology essay. But as the 1950s progressed he increasingly focused on issues of public policy. While working in Paris for a few months in 1950 consulting for the U.S. agency that administered the Marshall Plan, Friedman wrote a memo that recommended ditching the Bretton Woods system of fixed currency exchange rates (devised in part by John Maynard Keynes, who had been almost ruined trading currencies in 1920).

Popularized and expanded upon the chart-reading Dow theory of his predecessor Charles Dow. Friedrich Hayek Austrian economist whose anti-big-government book, Road to Serfdom (1944), inspired Milton Friedman and many other libertarians, and whose 1945 article, “The Use of Knowledge in Society,” helped inspire the efficient market hypothesis. Moved to the University of Chicago in 1950 but never played a big role in the Chicago school. Co-winner of the 1974 economics Nobel. Benjamin Graham Money manager who pioneered careful analysis of stocks and bonds and then, as a part-time professor at Columbia University and coauthor, with David L. Dodd, of the classic text Security Analysis, helped reshape Wall Street after the 1929 crash. Alan Greenspan Product of Wesley Mitchell’s institutionalist school of economics and protégé of libertarian author Ayn Rand who served as chairman of the Federal Reserve Board from 1987 to 2006.

Hutton, 57 earnings estimates, 280–81 Eastman Kodak, 161 Econometric Society, 36–37 Econometrica (Cowles), 37, 42, 48, 51 Econometrica (journal), 184 “The Economic Role of the Investment Company” (Bogle), 112 Economics (Samuelson), 61, 62–63 “The Economy as an Evolving Complex System” (conference), 302 Edwards, Robert, 68 Edwards, Ward, 177 efficient market hypothesis. See also rational market hypothesis and agency costs, 162 and behavioral finance, 299–300 and the Chicago School, xiii, 101–5 and contrary evidence, 224–25 and corporate finance, 355n. 38 described, 153 and Fama, 97, 206–7 and finance, 202–6 and Friedman, 93 and Graham, 119–20 and information availability, 182 and Jensen, 107 and market anomalies, 304 and market crashes, 228, 232 and Mills, 320 and mutual funds, 125, 130, 131 origin of, 43, 73 and portfolio theory, 54–55, 57 and psychology, 201–2 resistance to, 105–7, 269–70 and risk, 139 and Samuelson, 73 and security analysis, 366n. 29 and Shiller, 196–98 and Shleifer, 247 and stock market bubbles, 315 and takeovers, 166–68 taxonomy of, 101 testing, 190, 194–95 “Efficient Markets: Theory and Evidence” (Fama), 104 Einstein, Albert, 7, 50, 66 Ellis, Charley, 130, 131 Employee Retirement Income Security Act (ERISA), 272, 290 Employee Retirement Security Act, 137–38 endogenous change, 305–6 endowment effect, 294 Engel, Louis, 97–98 Engels, Friedrich, 369n. 1 Engle, Robert, 139 Enron, 267, 283 environmental risk, 185 equilibrium theory and the Arrow-Debreu framework, 77–78 and asset pricing, 87 background of, 9–12 and behavioral finance, 301 and complexity theory, 304–6 and derivatives, 237 and intrinsic values, 193 and Keynesian economics, 35 and mathematics, 49–50 and Pareto’s Law, 349–50n. 2 and Reder, 89–90 and Samuelson, 61 equity risk premium, 141–43, 263–64 Erhard, Werner, 285, 319 Erhard Seminars Training (est), 285 event study method, 102 exchange rates, 92–93, 200, 250 executive compensation, 164–65, 274–79, 279–80, 284–85 expected utility, 51–52, 54, 75, 80, 176–77, 193 experimental economics, 188–90 Fallows, James, 365n. 8 Fama, Eugene, 323 and Alexander, 72 and Asness, 259–60 and behavioral finance, 295–96, 296–97, 298, 299–300 and the Chicago School of Economics, 96 and computing, 99–100 and the efficient market hypothesis, 101, 103–5, 193–94, 204, 206–8 and equity risk premium, 263 and experimental economics, 190 and the Journal of Financial Economics, 201 and Mandelbrot, 70, 134 and market crashes, 232 satirical depiction of, 287–88 and Shleifer, 248, 252 and stock price momentum, 209–10 and value stocks, 225 Fannie Mae, 313 Farmer, J.


Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

Airbnb, Albert Einstein, algorithmic trading, barriers to entry, cloud computing, collaborative economy, commoditize, corporate governance, crony capitalism, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, demand response, disintermediation, disruptive innovation, double helix, Downton Abbey, Erik Brynjolfsson, experimental economics, Firefox, framing effect, Google Chrome, index arbitrage, information asymmetry, interest rate derivative, Internet of things, invisible hand, Jean Tirole, John Markoff, Joseph Schumpeter, Kenneth Arrow, light touch regulation, linked data, loss aversion, Lyft, Mark Zuckerberg, market clearing, market friction, Milgram experiment, multi-sided market, natural language processing, Network effects, new economy, offshore financial centre, pattern recognition, prediction markets, price discrimination, price stability, profit maximization, profit motive, race to the bottom, rent-seeking, Richard Thaler, ride hailing / ride sharing, road to serfdom, Robert Bork, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, smart meter, Snapchat, social graph, Steve Jobs, supply-chain management, telemarketer, The Chicago School, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Travis Kalanick, turn-by-turn navigation, two-sided market, Uber and Lyft, Uber for X, uber lyft, Watson beat the top human players on Jeopardy!, women in the workforce, yield management

In this regard, we recognize that when innovation leads to dynamic efficiency improvements and a period of market power, it is not a departure from competition, but it is a particular type of competition, and one that we should be careful not to mistake for a violation of the antitrust laws.”15 This is especially sensitive for antitrust scrutiny of product designs.16 Some, like one FTC commissioner, 26 Setting the Scene argue for a very light touch: “Although I am not arguing that antitrust has no place in technology markets, with a statute as elastic as Section 5, I think the Commission ought to tread extremely lightly in that space. Otherwise, it runs a serious risk of chilling innovation in what are arguably some of the most important industries in our economy.”17 Reflections The Chicago School has not influenced the EU competition policy to the same extent it has influenced U.S. policy. Even in the United States, the Chicago School—before the recent economic crisis—had begun losing its luster. But aside from cases of collusion, the common wisdom that continues to emerge is that the costs and harms of regulatory intervention in online industries will often exceed the benefits. As one FTC commissioner observed, “Where the Chicago School tends to advocate a hands off approach based on an over-riding concern about false positives, one could characterize the post-Chicago scholars as counseling a ‘light touch.’ ”18 Because online markets fueled by pricing algorithms should increase competition by lowering search costs and entry barriers, and increasing information flows and market transparency, market power is transient.

The spontaneous free market forces will eventually defeat, through expansion or de novo entry, this temporary market power. Under the Chicago School theory, the government will often cause more harm than good. In attempting to preempt the exercise of market power, the government may chill procompetitive behav ior. The concern is that, unlike market-created impediments, market forces may not readily overcome these government-imposed impediments to competition. The greater concern around governmental intervention lies with the risk of false positives, which can chill procompetitive market behavior and which market forces cannot readily redress, rather than false negatives, which entry or expansion eventually corrects.10 Light Touch Antitrust 25 The Chicago School’s neoclassical economic views in favor of removing or minimizing governmental restraints on the free market took hold in the Reagan administration.

Unilateral Conduct Working Group, Report on the Objectives of Unilateral Conduct Laws, Assessment of Dominance/Substantial Market Power, and State-Created Monopolies (Moscow: International Competition Network, May 2007), http://www.internationalcompetitionnetwork.org/uploads /library/doc353.pdf. 8. See, for example, Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978); Richard A. Posner, “The Chicago School of Antitrust Analysis,” University of Pennsylvania Law Review 127 (1978): 925, 933. 9. Posner, “The Chicago School of Antitrust Analysis.” 10. Justin Fox, The Myth of the Rational Market (New York: Harper Business/ HarperCollins, 2009), 89–107. 11. As President Reagan told the nation, “government is not the solution to our problem; government is the problem”; Ronald Reagan, First Inaugural Address (January 20, 1981), http://www.reaganlibrary.com/reagan/speeches /first.asp. 12.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, business cycle, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Meriwether, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, MITM: man-in-the-middle, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

., p. 33. 12 IT EMPHASIZED, AS SIMONS PUT IT: Henry Simons private papers, cited by Rob Van Horn and Philip Mirowski, “The Rise of the Chicago School of Economics and the Birth of Neoliberalism,” in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective, ed. Philip Mirowski and Dieter Plehwe (Cambridge, Mass.: Harvard University Press, 2009), p. 145. 13 THIS APPROACH IN A TIME: H. L. Miller, “On the Chicago School of Economics,” Journal of Political Economy 70 (February 1962): 64–69. 14 “MY TEACHERS REGARDED THE DEPRESSION”: Milton Friedman, “Comments on the Critics,” Journal of Political Economy (September-October 1972): 906–50. 15 “SIMONS FOR EXAMPLE DID NOT EQUATE”: Miller “On the Chicago School of Economics,” p. 70. 16 “ONCE A DEFLATION HAS GOTTEN UNDER WAY”: Henry Simons, Personal Income and Taxation: The Definition of Income as a Problem of Fiscal Policy (Chicago: University of Chicago Press, 1938), p. 222, cited by Esteban Pérez Caldentey and Matías Vernengo, “Fiscal Policy for the Global Economic Crisis,” Challenge, May-June 2001. 17 HE WAS, IN FACT, A MILD PROPONENT: Author interview with Milton Friedman, November 2003; Lanny Ebenstein, Milton Friedman: A Biography (London: Macmillan Palgrave, 2007). 18 FEW INVITATIONS CAME HIS WAY: Friedman did get an offer from the University of Wisconsin, but became embroiled in what he said was an anti-Semitic battle between the economics department and the business school, and he had to leave.

(New York: Foundation for Economic Education, 1946). 20 ONE CONSERVATIVE STAFFER: Van Horn and Mirowski, “The Rise of the Chicago School of Economics and the Birth of Neoliberalism,” p. 173n58. 21 THERE, PARTLY UNDER THE INFLUENCE: Obituary on his death, 2004, University of Chicago Press Office, http://eh.net/pipermail/hes/2004-September/002496.html. 22 THE FUND ALSO HELPED FINANCE: In the Foreword to Capitalism and Freedom, Friedman acknowledges the Volker Fund’s financing of his book, which many considered the American version of The Road to Serfdom, despite obvious differences. 23 HAYEK WROTE THE PROPOSAL: From Theodore Schultz (a Chicago economist) papers, cited by Van Horn and Mirowski, “The Rise of the Chicago School of Economics and the Birth of Neoliberalism,” p. 152. 24 HE HAD WRITTEN IN 1948: Ibid. See also J.

According to Friedman, the Chicago economists also believed that the Depression was the consequence of mistaken government policies, not the financial speculation of the 1920s or any other inherent weakness of free markets. “My teachers regarded the depression as largely the product of misguided policy,” Friedman wrote. “They blamed the monetary and fiscal authorities for permitting banks to fail and the quantity of deposits to decline.” But what became known as the Chicago School was originally not, contrary to conventional wisdom, as pure a free market institution as it became when Friedman was its leading member in the 1950s. “Simons for example did not equate the ideal market with the actual market in this country,” wrote one economist. The older guard also believed that short-term government spending could be necessary in some circumstances to support a falling economy and that monetary policy itself was inadequate at times—ideas that were anathema to Friedman.


pages: 423 words: 92,798

No Shortcuts: Organizing for Power in the New Gilded Age by Jane F. McAlevey

affirmative action, Affordable Care Act / Obamacare, Albert Einstein, anti-communist, call centre, clean water, collective bargaining, feminist movement, hiring and firing, immigration reform, informal economy, Mark Zuckerberg, mass incarceration, Naomi Klein, new economy, Occupy movement, precariat, Right to Buy, Ronald Reagan, Silicon Valley, Silicon Valley startup, single-payer health, The Chicago School, union organizing, Upton Sinclair, women in the workforce

The CTU began surrendering its members’ rights under a wave of anti–teachers’ union legislation—much of it Chicago-specific rather than statewide—that presaged the national attack on teachers’ unions, including the subsequent federal law called No Child Left Behind. Chicago’s students and teachers became the guinea pigs for a relentless barrage of efforts to “reform” both education and unions—few of which changed actual outcomes in student achievement or teachers’ morale.12 In 1988, on the heels of the 1987 strike, the first of a series of legislative changes was approved: the Chicago School Reform Law. The law was sold as a pro-community decentralization effort, and in many respects it was. It resulted in several key changes to longstanding policy: Local school councils (LSCs), consisting of one principal, six parents, two teachers, and two community members, were created and empowered to hire school principals and make budgetary decisions; principals no longer received tenure; and principals were empowered to hire and fire teachers.

Additionally, the grassroots reform groups who had been proponents of the 1988 Chicago School Reform Act concluded that the law hadn’t led to greater parental involvement, one of their goals. Finally, a fiscal crisis—which some in the union allege was completely manufactured—prompted a new effort in the state legislature to “fix” Chicago’s schools—one more sweeping and more explicitly aimed at weakening the union. In 1995, the Amendatory Act, aimed at amending the Chicago School Reform Act, had its bull’s-eye the teachers and their union.17 In the name of the alleged fiscal crisis, and with Illinois having trifecta Republican control—the governor and both legislative chambers belonged to the same conservative party—permitted privatization within the Chicago public school system for the first time, encouraging the private subcontracting of many functions, including the cafeterias, janitorial services, and more.

In May of 2001, Debbie Lynch and the PACT slate swept all the top offices and executive board seats in CTU—the first time that UPC had been out of office since the late 1960s. The difference between the slate she ran in her failed bid in 1998 from her slate in 2001 was Howard Heath, a black teacher she picked as her number two. The addition of Heath, along with the mounting chaos being created by Vallas, all but assured PACT’s election success. One month later, Mayor Daley would nominate Arne Duncan, Vallas’s chief of staff, as the new CEO of the Chicago school system. Duncan was a Harvard grad who had been playing professional basketball in Australia for four years. His experience in the field of education was minimal: He’d once been the director of a small nonprofit that worked on educational achievement issues.21 Duncan’s strategy with the union was to foster collaboration with Lynch, its new leader—courting her, calling her often, and immediately bringing her into his fold.


pages: 327 words: 88,121

The Vanishing Neighbor: The Transformation of American Community by Marc J. Dunkelman

Affordable Care Act / Obamacare, Albert Einstein, assortative mating, Berlin Wall, big-box store, blue-collar work, Bretton Woods, Broken windows theory, business cycle, call centre, clean water, cuban missile crisis, dark matter, David Brooks, delayed gratification, different worldview, double helix, Downton Abbey, Fall of the Berlin Wall, Filter Bubble, Francis Fukuyama: the end of history, George Santayana, Gini coefficient, glass ceiling, global supply chain, global village, helicopter parent, if you build it, they will come, impulse control, income inequality, invention of movable type, Jane Jacobs, Khyber Pass, Louis Pasteur, Marshall McLuhan, McMansion, Nate Silver, obamacare, Occupy movement, Peter Thiel, post-industrial society, Richard Florida, rolodex, Saturday Night Live, Silicon Valley, Skype, social intelligence, Stanford marshmallow experiment, Steve Jobs, telemarketer, The Chicago School, The Death and Life of Great American Cities, the medium is the message, Tyler Cowen: Great Stagnation, urban decay, urban planning, Walter Mischel, War on Poverty, women in the workforce, World Values Survey, zero-sum game

The third migration saw the arrival of millions of European immigrants in the nation’s metropolises. And the fourth, which had only begun when Mumford was writing his essay, was the exodus of well-to-do city dwellers from the urban core—an evolution propelled by the pull of the single-family homes being constructed on city outskirts around the country. Mumford’s contemporaries in the world of sociology—or, at least, those who came to be known as members of the Chicago School—were largely preoccupied with the effects of that third migration, from town to city. Believing that distinct social environments shaped disparate social outcomes, they worried that the depravity of urban life might breed generations of social misfits.11 They feared that absent the warmth and comity of small-town America, the children of urban factory workers would mature without the decency required to sustain a modern, civilized society.

Believing that distinct social environments shaped disparate social outcomes, they worried that the depravity of urban life might breed generations of social misfits.11 They feared that absent the warmth and comity of small-town America, the children of urban factory workers would mature without the decency required to sustain a modern, civilized society. The American Dream might eventually be extinguished amid the crime-ridden and poverty-stricken streets of America’s overcrowded cities. By the end of the 1900s, with cities awash in the affluent crowd Richard Florida termed the “creative class” seeming safer and more prosperous, a look back might have concluded that the Chicago School’s concerns were absurd.12 But a snapshot of life back then reveals the roots of their worry. America’s big turn-of-the-century metropolises were nasty places. The nation’s new mills and factories polluted the surrounding areas. Crime was rampant—at least by the imagined standards of idyllic small-town life.13 The political issues of the day were largely understood through that prism: the push for prohibition, for example, was at heart an effort by the nation’s more staid rural population to impose a sense of decorum on raucous and unhinged masses.14 As New York University historian Thomas Bender noted in an important book published decades later, a subtler change was also at work: the growing separation between home and neighborhood.

As reported at the time, even as Genovese screamed for help in an alley, none of the thirty-eight people within earshot took the trouble to call the police.18 The horror of the attack, and the blithe decision of those nearby to turn away rather than help, suggested that inhabitants of America’s cities had been stripped of the innately human instinct to be their brother’s keeper. Genovese’s story, however apocryphal, reinforced what sociologists associated with the Chicago School had argued decades earlier: urban America was a place where few people knew your name.19 The Industrial Revolution, the sociologists concluded, hadn’t simply changed the sorts of professions driving the economy—it had disrupted the very fabric of American community. Americans had moved to cities, taken jobs on assembly lines, and begun to raise their children in the hustle and bustle of city life.


pages: 339 words: 95,988

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt, Stephen J. Dubner

airport security, Broken windows theory, crack epidemic, desegregation, Exxon Valdez, feminist movement, George Akerlof, information asymmetry, Joseph Schumpeter, Kenneth Arrow, longitudinal study, mental accounting, moral hazard, More Guns, Less Crime, oil shale / tar sands, Paul Samuelson, peak oil, pets.com, profit maximization, Richard Thaler, school choice, sensible shoes, Steven Pinker, Ted Kaczynski, The Chicago School, The Market for Lemons, Thorstein Veblen, twin studies, War on Poverty

A behavioral scientist could hardly design a better experiment in his laboratory. Just as the scientist might randomly assign one mouse to a treatment group and another to a control group, the Chicago school board effectively did the same. Imagine two students, statistically identical, each of whom wants to attend a new, better school. Thanks to how the ball bounces in the hopper, one student goes to the new school and the other stays behind. Now imagine multiplying those students by the thousands. The result is a natural experiment on a grand scale. This was hardly the goal in the mind of the Chicago school officials who conceived the lottery. But when viewed in this way, the lottery offers a wonderful means of measuring just how much school choice—or, really, a better school—truly matters. So what do the data reveal?

Remember Terry Malloy, the tormented former boxer played by Marlon Brando in On the Waterfront? As Malloy saw it, all his troubles stemmed from the one fight in which he took a dive. Otherwise, he could have had class; he could have been a contender. If cheating to lose is sport’s premier sin, and if sumo wrestling is the premier sport of a great nation, cheating to lose couldn’t possibly exist in sumo. Could it? Once again, the data can tell the story. As with the Chicago school tests, the data set under consideration here is surpassingly large: the results from nearly every official match among the top rank of Japanese sumo wrestlers between January 1989 and January 2000, a total of 32,000 bouts fought by 281 different wrestlers. The incentive scheme that rules sumo is intricate and extraordinarily powerful. Each wrestler maintains a ranking that affects every slice of his life: how much money he makes, how large an entourage he carries, how much he gets to eat, sleep, and otherwise take advantage of his success.

“Cheating classrooms will systematically differ from other classrooms along a number of dimensions,” he and his co-author, Brian Jacob of the Kennedy School of Government, wrote in “Catching Cheating Teachers.” “For instance, students in cheating classrooms are likely to experience unusually large test-score gains in the year of the cheating, followed by unusually small gains or even declines in the following year when the boost attributable to cheating disappears.” Levitt used test-score data from the Chicago schools that had long been available to other researchers. There were a number of ways, he realized, that a teacher could cheat. If she were particularly brazen (and stupid), she might give students the correct answers. Or, after the test, she might actually erase students’ wrong answers and fill in correct ones. A sophisticated cheater would be careful to avoid conspicuous blocks of identical answers.


pages: 380 words: 109,724

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US by Rana Foroohar

"side hustle", accounting loophole / creative accounting, Airbnb, AltaVista, autonomous vehicles, banking crisis, barriers to entry, Bernie Madoff, Bernie Sanders, bitcoin, book scanning, Brewster Kahle, Burning Man, call centre, cashless society, cleantech, cloud computing, cognitive dissonance, Colonization of Mars, computer age, corporate governance, creative destruction, Credit Default Swap, cryptocurrency, data is the new oil, death of newspapers, Deng Xiaoping, disintermediation, don't be evil, Donald Trump, drone strike, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Etonian, Filter Bubble, future of work, game design, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, informal economy, information asymmetry, intangible asset, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Kenneth Rogoff, life extension, light touch regulation, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Menlo Park, move fast and break things, move fast and break things, Network effects, new economy, offshore financial centre, PageRank, patent troll, paypal mafia, Peter Thiel, pets.com, price discrimination, profit maximization, race to the bottom, recommendation engine, ride hailing / ride sharing, Robert Bork, Sand Hill Road, search engine result page, self-driving car, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, South China Sea, sovereign wealth fund, Steve Jobs, Steven Levy, subscription business, supply-chain management, TaskRabbit, Telecommunications Act of 1996, The Chicago School, the new new thing, Tim Cook: Apple, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, zero-sum game

Generation Greed It’s no accident that most of the wealth in our world is being held by a smaller and smaller number of rich individuals and corporations, who use financial wizardry like tax offshoring and buybacks to ensure that they keep it out of the hands of national governments. It’s what we’ve been taught to think of as normal, thanks to the ideological triumph of the Chicago School of economic thought, which has, for the past five decades or so, preached—among other things—that the only purpose of corporations should be to maximize profits. The notion of “shareholder value” is shorthand for this idea.12 The maximization of shareholder value is part of the larger process of “financialization,” which I covered in my previous book, Makers and Takers.13 It’s a process that has risen, in tandem with the Chicago School of thinking, since the 1980s, and has created a situation in which markets have become not a conduit for supporting the real economy, as Adam Smith would have said they should be, but rather, the tail that wags the dog.

“While the rank and file in Silicon Valley is liberal, the top people at the top firms tend to believe that greed is good.” How could they not? Ever since the 1980s, most of American business has been subscribing to the trickle-down “markets know best” doctrine popularized by the so-called Chicago School of economics. The Internet platforms in particular have benefited enormously from the Chicago School’s antitrust philosophy, which maintains that as long as products are cheap or free, there’s no monopoly issue. As McNamee outlines in his own book, Zucked, “Google leveraged its dominant market position in search to build giant businesses in email, photos, maps, videos, productivity applications, and a variety of other apps. In most cases, Google was able to transfer the benefits of monopoly power from an existing business to a nascent one.”

Many critics see evidence of that behavior in Google today, something that Delrahim has told me the DOJ is looking out for.32 “Can you use position to disadvantage and discriminate against a new technology that would challenge a monopoly position?” he asks. “I think that’s an important test and a good guidepost for a lot of us as we look to the type of practices that are happening with a Google or with anyone else.” A Price on Data? The big question now is how policy should shift, and on what basis new antitrust and monopoly cases should be argued. There are some who believe the Chicago School’s consumer pricing philosophy could actually be used to curb the power of the tech titans. “As data becomes more and more important, you get more efficient products for consumers, but you also get certain barriers [to competition],” says Delrahim. “There should be competition to create and collect data,” he says, hinting at the notion that choice—and not just price—should be part of the consumer welfare metric.33 SEC commissioner Robert Jackson has said he believes that companies should have to report the value of their data on their filings, just as they would any other material holding.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

In the face of Hella’s objections, it was granted in 1950 via a court in Arkansas, where he was a visiting lecturer at the time and where the divorce laws were permissive. Helene was recently widowed, and a few weeks later the couple were married in Vienna. Hayek resigned from the LSE and the newlyweds moved stateside to start a new life in Chicago. The Chicago School of economics was a school of thought based on free-market economics and a libertarian philosophy. It was not quite the same thing as the actual economics faculty within the university. Although the Chicago School was happy to identify with Hayek, given how well he fitted with their approach, he was not coveted by the Economics Department itself. The Road to Serfdom was recognized as an important book, but still mainly treated as a popular rather than a scholarly text. In the department’s view, Hayek was now off the beaten track of economic research and no longer at the forefront of the technical work done at the university.

Throughout his long life Friedman remained an advocate of the free market and even initially considered the establishment of America’s central bank, the Federal Reserve, to have been a mistake. Although he later accepted that the Fed was necessary to control the money supply, he insisted it should be confined to that role, and not be an activist institution. Unsurprisingly, he disagreed with the Keynesian view that fiscal policies have a lasting impact on the economy. Part of the Chicago School of economics, in 1963 Friedman co-wrote with Anna Jacobson Schwartz one of the most influential books on monetary policy: A Monetary History of the United States, 1867–1960. They revisited the causes of the Great Depression to understand what happened and why it took so long to recover from the 1929 stock market crash. Their conclusion is that monetary policy was the culprit, specifically the Fed prematurely tightening the money supply, which they argued caused the crash and also led to a second economic downturn, known as a ‘recession within the Depression’, of 1937–38.

This is in line with the EU investment fund described earlier that leverages public funds to attract private financing. Would this policy lead to persistent budget deficits? This was one of the criticisms of Keynes. It’s why governments have been reluctant to borrow to invest. They fear bond investors will ask for higher returns to lend them money, increasing the borrowing costs for a country that could jeopardize its economic growth. The verdict is far from settled. The Chicago School of monetarists say that Keynes’s counter-cyclical policies are bound to fail since their effects will be anticipated, either immediately or after a short lag. Harvard economist Robert Barro argues that future tax rises to pay for government deficit spending are figured into long-term interest rates by investors and savers. That will lead to higher rates in the future and make government borrowing more expensive and the budget deficit less affordable.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

In the face of Hella’s objections, it was granted in 1950 via a court in Arkansas, where he was a visiting lecturer at the time and where the divorce laws were permissive. Helene was recently widowed, and a few weeks later the couple were married in Vienna. Hayek resigned from the LSE and the newlyweds moved stateside to start a new life in Chicago. The Chicago School of economics was a school of thought based on free-market economics and a libertarian philosophy. It was not quite the same thing as the actual economics faculty within the university. Although the Chicago School was happy to identify with Hayek, given how well he fitted with their approach, he was not coveted by the Economics Department itself. The Road to Serfdom was recognized as an important book, but still mainly treated as a popular rather than a scholarly text. In the department’s view, Hayek was now off the beaten track of economic research and no longer at the forefront of the technical work done at the university.

Throughout his long life Friedman remained an advocate of the free market and even initially considered the establishment of America’s central bank, the Federal Reserve, to have been a mistake. Although he later accepted that the Fed was necessary to control the money supply, he insisted it should be confined to that role, and not be an activist institution. Unsurprisingly, he disagreed with the Keynesian view that fiscal policies have a lasting impact on the economy. Part of the Chicago School of economics, in 1963 Friedman co-wrote with Anna Jacobson Schwartz one of the most influential books on monetary policy: A Monetary History of the United States, 1867–1960. They revisited the causes of the Great Depression to understand what happened and why it took so long to recover from the 1929 stock market crash. Their conclusion is that monetary policy was the culprit, specifically the Fed prematurely tightening the money supply, which they argued caused the crash and also led to a second economic downturn, known as a ‘recession within the Depression’, of 1937–38.

This is in line with the EU investment fund described earlier that leverages public funds to attract private financing. Would this policy lead to persistent budget deficits? This was one of the criticisms of Keynes. It’s why governments have been reluctant to borrow to invest. They fear bond investors will ask for higher returns to lend them money, increasing the borrowing costs for a country that could jeopardize its economic growth. The verdict is far from settled. The Chicago School of monetarists say that Keynes’s counter-cyclical policies are bound to fail since their effects will be anticipated, either immediately or after a short lag. Harvard economist Robert Barro argues that future tax rises to pay for government deficit spending are figured into long-term interest rates by investors and savers. That will lead to higher rates in the future and make government borrowing more expensive and the budget deficit less affordable.


pages: 440 words: 128,813

Heat Wave: A Social Autopsy of Disaster in Chicago by Eric Klinenberg

carbon footprint, citizen journalism, deindustrialization, fixed income, ghettoisation, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, longitudinal study, loose coupling, mass immigration, megacity, New Urbanism, postindustrial economy, smart grid, smart meter, The Chicago School, The Death and Life of Great American Cities, The Structural Transformation of the Public Sphere, urban renewal, War on Poverty

The location of the heat wave makes the event an especially rich empirical resource for assessing the methodological and theoretical tools of urban sociology, and particularly the legacy established by the Chicago school of urban research. For Chicago, with its famously divided segments, its infamous segregation, and its stark inequality, is not only the quintessential American city of extremes. It is also the city in and through which scholars founded and developed the American approach to urban studies, creating an agenda for investigation in the urban environment that shaped much of twentieth-century urban social science. Although in recent decades scholars associated with the new urban sociology have levied compelling criticisms of the Chicago school’s “urban ideology”—most notably its failure to call attention to the political and economic production of inequality and domination in the city—the Chicago techniques for exploring the social fabric of the city offer rich possibilities for discovery.

Although in recent decades scholars associated with the new urban sociology have levied compelling criticisms of the Chicago school’s “urban ideology”—most notably its failure to call attention to the political and economic production of inequality and domination in the city—the Chicago techniques for exploring the social fabric of the city offer rich possibilities for discovery. The marks of both the first and second waves of the Chicago school are evident throughout this analysis of the heat wave: the case study; the emphasis on physical and social space; the focus on community and public life; the investigation of ethnoracial differentiation; and the assessment of the city as a total social system—all at the heart of the Chicago school problematic—are central to this project. Ironically, though, this analysis of the solitary deaths in the living laboratory of Chicago breaks from the school’s traditional approach to the issue of social isolation in the city, one of the key concerns of the American sociology. For while the early Chicago school urbanists emphasized the isolation of different regions in the metropolis, here I treat the city as a complex social system of integrated institutions that touch and interpenetrate in a variety of ways.

There has never been much evidence that urban regions are isolated as separate social worlds in the ways that the early Chicago sociologists described, and in retrospect, it appears that their method of focusing attention on one community or neighborhood oriented urban theory toward problems of segmentation rather than sources of contact and connection. But the heat wave helped to show that under contemporary conditions certain urban residents suffer from forms of literal isolation, the consequences of which can be dire. Assessing the social processes and spatial patterns that foster such isolation requires exchanging the Chicago school’s biotic vocabulary for describing urban social processes with concepts and categories that recognize the significance of socially engineered inequality and difference. Moreover, it demands a method of investigation capable of comprehending the city as a complex system, where nature, culture, and politics conspire to determine the fate of its inhabitants. The second major concern of this book is to analyze the symbolic construction of the heat wave as a public event and experience.


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

Paul's first class in economics was taught by Aaron Director, who was perhaps the most libertarian among the faculty and who later became Milton Friedman's brother-in-law. Both Friedman and George Stigler were graduate students at the time. Director's laissez-faire philosophy failed to take in the youthful reformist Samuelson, who enjoyed being an intellectual heretic in a conservative institution and who was influenced by a father known as a "moderate socialist." Moreover, during the depression, most of the leaders of the Chicago school advocated deficit spending and other government activist policies as temporary measures. Samuelson did inherit one concept from Chicago that he carried with him until he encountered Keynes—monetarism. He called himself a "jackass" for having been taken in (Samuelson 1968, 1). Alvin Hansen Switches Sides to Become the "American Keynes" After Chicago, Samuelson immediately went to Harvard, where he witnessed an amazing transition.

During the heyday of Keynesianism, which lasted into the late 1960s, too many economists were fearful that thrifty consumers might damage the economy, that progressive taxation and federal deficits could do no harm, that monetary policy didn't matter, and that centrally planned economies such as the Soviet Union could grow faster than the free West. The spirit of Keynes, and even Marx, dominated the political and intellectual atmosphere. Milton Friedman Leads a Monetary Counterrevolution However, by the early 1960s, a counterrevolution had begun that went a long way toward restoring the virtues of free markets and classical economics. The primary force behind this revolt against Keynesianism was the Chicago school of economics, led by Milton Friedman (1912-2006). His fierce, combative style and ideological roots were ideally suited for the task of taking on the Keynesians. Moreover, he had impeccable credentials in technical economics to command respect from the profession. Friedman earned his Ph.D. in economics from Columbia University; he won the highly prestigious John Bates Clark Medal two years after Paul Samuelson won it; and he taught economics at one of the premier institutions in the country, the University of Chicago.

He declares that market imperfections and market failures are so pervasive and so serious that the market is always inefficient and requires government correction. Imperfect information exists in labor, products, money, trade, and capital markets.1 Serious unemployment 1. Neo-Keynesians have contributed extensively to the new field of "behavioral economics," which questions the efficiency/rational expectations model of the Chicago school, and proposes ways to counter the tendency of individuals to make financial mistakes, such as undersaving, over-consuming, and undeipeiforming the stock market averages. See, for example, Richard Thaler (2004) andRobert Shiller (2005). However, not all behavioral economists are Keynesian. See Jeremy Siegel (2005). could exist even without minimum wage laws or labor unions, he contends. During the Great Depression, "had there been more wage and price flexibility, matters might have been even worse," he states (2001, 477).


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Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

"Robert Solow", airport security, banking crisis, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, Paul Samuelson, Philip Mirowski, price mechanism, pushing on a string, road to serfdom, Robert Bork, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

The Pèlerinos who ascended the funicular railway to the Hôtel du Parc, a resort more used to hikers than intellectuals, were a disparate group brought together by a shared sense of righteous isolation and noble persecution. As the historian George H. Nash17 put it, “The participants, high in the Swiss Alps, were only too conscious that they were outnumbered and without apparent influence on policymakers in the Western world.”18 Among those present were Mises; Robbins; Frank Knight; George Stigler,19 the Chicago School economist; Fritz Machlup, the Austrian School economist who fled to America in 1933; John Jewkes,20 the British antiplanning economist; Karl Popper,21 the LSE scientific philosopher; Henry Hazlitt, whose laudatory review of The Road to Serfdom in the The New York Times helped ensure the book’s success in America; William Rappard, head of the École des Hautes Études in Geneva; Wilhelm Röpke, of Geneva, who was to reform the German currency; and Veronica Wedgwood,22 the Oxford-educated English Civil War historian who wrote pieces for Time and Tide.

Friedman’s championing of Hayek’s libertarian approach to the economy and politics ignored the Austrian “stages of production” notions in favor of government regulation of the supply of money, a process that the Austrians thought anathema. And while Hayek believed that the free market held a monopoly of virtue, Chicago scholars such as Frank Knight believed it could be equally as inefficient as government intervention. However, the fact that both the Austrian and the Chicago School believe that prices hold the key to understanding the economy, and that the free market is preferable to intervention, has meant that the competing traditions are commonly deemed to be synonymous. Friedman’s breakthrough in economics, determining the link between unnecessary constrictions in the money supply and recessions that follow, showed how profoundly Chicago’s economists could differ.

Unlike Hayek and Mises, who thought economic activity too complex to quantify and that averages were misleading indicators of how individuals set prices, Friedman’s research took as a given the Keynesian notion of observing the economy as a whole and using averages to determine the cause and effect of economic changes. While careful never to criticize Hayek’s Austrian School notions too harshly, Friedman remained unconvinced of their merit. Hayek’s venture into doomsday prognostication in The Road to Serfdom was also cited as evidence that he lacked the intellectual rigor expected at the Chicago School. According to John Nef, chairman of Chicago’s Committee on Social Thought, some Chicago economists believed The Road to Serfdom “too popular a work for a respectable scholar to perpetrate. It was all right to have him at Chicago so long as he was not associated with the economists.”42 In the fall of 1950, at the suggestion of Nef, Hayek became professor of social and moral science in the Committee on Social Thought, a chair funded in part by the Volcker fund.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Robert Solow", Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Blythe Masters, Bretton Woods, British Empire, business cycle, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

Nothing in this book should be taken as an argument for returning to the land or reconstituting the Soviets’ Gosplan. But to claim that free markets always generate good outcomes is to fall victim to one of three illusions I identify: the illusion of harmony. In Part I, I trace the story of what I call utopian economics, taking it from Adam Smith to Alan Greenspan. Rather than confining myself to expounding the arguments of Friedrich Hayek, Milton Friedman, and their fellow members of the “Chicago School,” I have also included an account of the formal theory of the free market, which economists refer to as general equilibrium theory. Friedman’s brand of utopian economics is much better known, but it is the mathematical exposition, associated with names like Léon Walras, Vilfredo Pareto, and Kenneth Arrow, that explains the respect, nay, awe with which many professional economists view the free market.

In such an environment, free market economists were relegated to the role of preachers in an obscure sect. They sustained themselves by offering eulogies up to Smith and the invisible hand. The two most important of these evangelists were Friedrich Hayek, a well-bred Austrian who was born in Vienna in 1899, and Milton Friedman, a voluble New Yorker who was born in Brooklyn in 1912. In the late 1940s, both Hayek and Friedman moved to the University of Chicago, where they helped to create the “Chicago School” of economics. Friedman, who died in 2006, remains a household name, but even among economists, Hayek, who died in 1992, is a much less well-known figure. When I began studying economics at Oxford during the early eighties, Hayek was widely seen as a right-wing nut. True, he had received the Nobel Memorial Prize in 1974, but that was viewed within the economics profession as a political sop, with Hayek’s name added to balance that of his co-winner, Gunnar Myrdal, a left-wing Swedish economist.

They emanate from the second law of thermodynamics, commonly referred to as “time’s arrow.” Since time doesn’t run backward, the future is unknown and businesses, investors, and consumers are compelled to make decisions on the basis of best guesses about what might happen. Sometimes these guesses turn out to be fairly accurate. Often, they don’t, and when this happens resources tend to get misallocated. (In adopting the rational expectations hypothesis, the members of the Chicago School sidestepped this problem.) Having raised the issues of uncertainty and information, which pose fundamental problems for any economic theory, Bator turned to areas that are more amenable to traditional analysis. Even in a world of perfect foresight, he argued, there would be at least three other sources of market failure. One is monopoly or oligopoly power. In the free market model, each industry consists of large numbers of competing firms, none of which can capture more than a small share of the market.


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Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

Real business-cycle theory dismisses market imperfections and assumes "rational expectations" -consumers and businesses behave as if they had access to all available knowledge and infinite calculating power. Real business-cycle theory takes the assumptions of rationality in business decisions to the same extremes as Becker's description of family life. 14 The Chicago School also recognizes the merits of the market system as a pluralist process of experiment and discovery. Some of the most compelling formulations of the arguments of chapters 9 and 10 have been presented by Chicago economists such as F. H. Knight and more recently by Almar Alchian. 15 But the much stronger claim of the Chicago School is that competitive markets have efficiency properties unattainable under any other form of economic organization. Indeed this is now the belief of many mainstream economists. The best-selling economics textbook by Gregory Mankiw-a mainstream economist, but currently President Bush's principal economic adviser-sets out the claims clearly: Culture and Prosperity { 201 } These observations lead to two insights about market outcomes: free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. free markets allocate the demand for goods to the sellers who can produce them at least cost.

Problems of incentive compatibility, and the absence of the collective knowledge created by the trials and errors of disciplined pluralism, would inevitably lead to failure. Hayek, von Mises, and some other Central European economists of the early to mid twentieth century are sometimes described as "the Austrian school." 6 Hayek was actually an isolated figure, and the Nazi destruction of the intellectual life of Central Europe prevented the development of any continuing tradition. More recently, the conservative baton has transferred to Chicago. The Chicago School ••••••••••••••••••••••••••••••••••••• Almost from its foundation by John D. Rockefeller, the University of Chicago was a center of conservative economic thought? Gary Beckern encapsulates that philosophy: "The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach." 8 As well as Becker and Friedman, Chicago figures such as George Stiglern and Richard Posner have played an active part in policy debates.

It became clear that Wolfensohn's continued support for Stiglitz might be at the cost of his own job, and in 1999 Stiglitz returned to research and teaching at Stanford University. In 2001, Stiglitz, along with George Akerlof and Michael Spence, was awarded the Nobel Prize for work on markets and imperfect information. That award was a formal recognition ofhow far modern economics had moved from the simplified theoretical framework of Arrow-Debreu and the simplified policy prescriptions of the Chicago School. Stiglitz became an increasingly public and controversial figure. I return to this controversy in chapter 28. In the remaining chapters of this part of the book, I review successively various assumptions explicit or implicit in the ArrowDebreu framework: What happens if individuals are not self-regarding utility maximizers? (chapter 18) What happens if information about complex products is imperfect?


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

Americans, who had first defined themselves as a nation of farmers, and then as a nation of factory workers, increasingly defined themselves as a nation of consumers. And as consumption replaced work as the quintessence of American identity, one consequence was a growing intolerance for public policies that aimed to preserve the welfare of producers. Judges wanted to believe Bork, too. They were struggling to deal with increasingly complex antitrust cases, and the “Chicago School” approach of Director and his disciples offered a clear and consistent standard, even for more liberal jurists. Stephen Breyer, the future Supreme Court justice, wrote in 1983, while serving on the First Circuit Court of Appeals, that economics “offers objectivity — terra firma — upon which we can base decisions.”61 The year after Bork’s book was published, the Carter administration intervened in an antitrust lawsuit against a hearing aid maker, Sonotone, to assert that the legality of corporate conduct should be based on consumer welfare.

His subject was the “progressive ossification” of the British economy, which he attributed to “an almost unanimous abandonment of price competition.”43 During his graduate years, he also worked for a series of government agencies, laying the groundwork for his long career at the intersection of academia and public policy. He briefly served in the army and then landed at Cornell, where he remained for more than six decades, singing in student productions of light operas as often as he was invited onstage. As a scholar of regulation, Kahn stood in the mainstream, rejecting the ideas being raised by the Chicago School. He subscribed to the conventional view that large companies were bad for the economy. In a 1940 paper, he warned that industrial giants like General Electric were taking advantage of patent laws to prevent the rise of potential competitors. The “great research laboratories are only incidentally technological centers,” he wrote. “From the business standpoint, they are patent factories: They manufacture the raw material of monopoly.”44 In a 1954 book, Fair Competition, he defended the idea that the government should protect small business at the expense of consumers.

Friedman, who outlived most of his peers, offered an account of the friendship in “George Stigler: A Personal Reminiscence,” Journal of Political Economy 101, no. 5. 29. Stigler was hired by W. Allen Wallis, who had been a friend of both Stigler and Friedman in graduate school, as well as their boss at Columbia during the war, and was then serving as dean of the Chicago business school. 30. Edward Nik-Khah, “George Stigler, the Graduate School of Business and the Pillars of the Chicago School,” in Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program, ed. Robert Van Horn et al. (Cambridge, Eng.: Cambridge University Press, 2011), 121. 31. In this view, he had good company, including the Nobel Prize committee, which cited the paper prominently in making Stigler a laureate in 1982. 32. George J. Stigler, “The Economics of Information,” Journal of Political Economy 69, no. 3 (1961). 33.


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Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, Black Swan, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, shareholder value, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

The quality of the Hull House research has led to suggestions that were it not for the misogynist male sociologists at the University of Chicago, Addams and her colleagues would be properly appreciated as important figures in the history of American sociology. Mary Jo Deegan, Jane Addams and the Men of the Chicago School (New Brunswick: Transaction Books, 1988). 40. Don Martindale, “American Sociology Before World War II,” Annual Review of Sociology 2 (1976): 121; Anthony J. Cortese, “The Rise, Hegemony, and Decline of the Chicago School of Sociology, 1892–1945,” The Social Science Journal, July 1995, 235; Fred H. Matthews, Quest for an American Sociology: Robert E. Park and the Chicago School (Montreal: McGill Queens University Press, 1977), 10; Martin Bulmer, The Chicago School of Sociology. 41. Small, cited by Lawrence J. Engel, “Saul D. Alinsky and the Chicago School,” The Journal of Speculative Philosophy 16, no. 1 (2002): 50–66. In addition to a mass of case studies in its neighborhood, the university had the added advantage of John D.

Tom Hayden, “Up from Irrelevance,” Studies on the Left, Spring 1965. 28. Francesca Polletta, “Freedom Is an Endless Meeting”: Democracy in American Social Movements (Chicago: University of Chicago Press, 2002). 29. Lawrence J. Engel, “Saul D. Alinsky and the Chicago School,” The Journal of Speculative Philosophy 16, no. 1 (2002). 30. Robert Park, “The City: Suggestions for the Investigation of Human Behavior in the City Environment,” The American Journal of Sociology 20, no. 5 (March 1915): 577–612. 31. Engel, “Saul D. Alinsky and the Chicago School,” 54–57. One of Burgess’s courses taken by Alinsky was on the “pathological conditions and processes in modern society,” which included “alcoholism, prostitution, poverty, vagrancy, juvenile and adult delinquency.” This would be done through “inspection trips, survey assignments, and attendance at clinics.” 32.

The extraordinary boost from RAND’s budget and advances in computing put social science on a new footing. The effect was particularly striking with economics. Orthodox economics had faced a crisis during the great depression of the 1930s. This led to greater empirical rigor backed by improved statistical analysis. Many key figures had learned the analytical techniques in wartime operational research. Even where there were important differences in emphasis and approach, as for example between the Chicago School and the Cowles Commission (which had been set up in 1932 to improve the collection and statistical analysis of economic data), they had much in common. Notably, they were rooted in the neoclassical tradition, going back to Walras and Pareto, and assumed that the safest assumption was of individual rationality. As Milton Friedman, the most prominent Chicago economist, put it: “We shall suppose that the individual in making these decisions acts as if he were pursuing and attempting to maximize a single end.”9 Friedman considered the debate about whether people really acted so rationally, following complex statistical rules, irrelevant.


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Cities Are Good for You: The Genius of the Metropolis by Leo Hollis

Airbnb, banking crisis, Berlin Wall, Boris Johnson, Broken windows theory, Buckminster Fuller, call centre, car-free, carbon footprint, cellular automata, clean water, cloud computing, complexity theory, congestion charging, creative destruction, credit crunch, Credit Default Swap, crowdsourcing, Deng Xiaoping, digital map, East Village, Edward Glaeser, Enrique Peñalosa, Firefox, Frank Gehry, Geoffrey West, Santa Fe Institute, Gini coefficient, Google Earth, Guggenheim Bilbao, haute couture, Hernando de Soto, housing crisis, illegal immigration, income inequality, informal economy, Internet of things, invisible hand, Jane Jacobs, Kickstarter, knowledge economy, knowledge worker, Long Term Capital Management, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, Masdar, mass immigration, megacity, negative equity, new economy, New Urbanism, Occupy movement, openstreetmap, packet switching, Panopticon Jeremy Bentham, place-making, Ray Oldenburg, Richard Florida, sharing economy, Silicon Valley, Skype, smart cities, smart grid, spice trade, Steve Jobs, technoutopianism, the built environment, The Chicago School, The Death and Life of Great American Cities, The Great Good Place, the High Line, The Spirit Level, The Wisdom of Crowds, Thomas Malthus, trade route, traveling salesman, urban planning, urban renewal, urban sprawl, walkable city, white flight, Y2K, Yom Kippur War

It is this, however, that makes it of all places the one in which to discover the secrets of the human heart, and to study human nature and society.’9 The Chicago School saw the city was a problem, a place that forced people into new behaviours. Park himself was interested in the process of immigrant assimilation into cities, and the resultant racism that met new arrivals. Similarly, Nels Anderson wrote about the hobo, highlighting the problem of homelessness; Ruth Shonle Cavan in 1929 wrote a book about young women coming to Chicago to work and the opportunities and problems that they faced. Meanwhile the black researcher Edward Franklin Frazier contextualised the issues of life within an African-American family in The Negro Family in Chicago. The Chicago School not only gained attention because of the subject matter of their work but also as a result of their method: promoting close and systematic observation rather than philosophical speculation on the formation of human nature or what people want.

The forgotten father of sociology, he is now remembered for his philosophy of money; however at the time it was his 1903 essay, ‘The Metropolis and Mental Life’, which highlighted the ills of urbanity, identifying the struggle between the individual’s need to be free and the demands of the ‘socio-technical mechanism’ of the city. Simmel’s work soon made its way across the Atlantic and in the 1920s was adopted as a bible by the Chicago School of Sociology. The group, which included Nels Anderson, Robert E. Park and Ernest Burgess, gained fame for their ‘ecological’ approach to studying urban life: that the city was a place of differences, and the environment was a key factor in determining human behaviour. In particular, they were fascinated by the relationship between cities and their anti-social or marginal communities, and how this could endanger or stimulate a community.

., 21 March 2012, www.theatlanticcities.com/jobs-and-economy/2012/03/why-people-cities-walk-fast/1550 4. Jacobs, J., 1993, pp. 77–8. 5. Griffith, P., Norman, W., O’Sullivan, C. and Ali, R., Charm Offensive: Cultivating Civility in 21st-Century Britain, Young Foundation, 2011, p. 25. 6. Ibid. 7. Lindsay, G., ‘Demolishing Density in Detroit’, Fast Company, 5 March 2010. 8. www.cardiff.ac.uk/socsi/undergraduate/introsoc/simmel.html 9. Smith, D., The Chicago School: A Liberal Critique of Capitalism, Macmillan Education, 1988, p. 123. 10. Sorkin, M., Twenty Minutes in Manhattan, Reaktion Books, 2009, p. 89. 11. CEQR Technical Manual, March 2010. 12. Wilson, J. Q. and Kelling, G. L., ‘Broken Windows’, Atlantic Monthly, 1982, from www.manhattan-institute.org 13. Bratton, W. and Tumin, Z., Collaborate or Perish: Reaching Across Boundaries in a Networked World, Crown Business, 2012, Chapter 1. 14.


pages: 482 words: 149,351

The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price mechanism, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, The Chicago School, Thorstein Veblen, too big to fail, transfer pricing, wealth creators, white picket fence, women in the workforce, zero-sum game

The argument when it started was simply about high rents, but by the end it had developed into something bigger: a grand and influential new theory about how states and nations ‘compete’ with each other. The two colleagues got on well enough as friends, but Tiebout was irritated that Burstein had become one of the fast-growing band of what he called Friedmaniacs, a group that blindly followed Milton Friedman, the Chicago School economist who was then on his way to becoming America’s financial godfather of the right. Tiebout was ‘one of the funniest guys I have ever known’, said Lee Hansen, one of his only surviving close friends. Tiebout would imitate academic bigwigs in his classes, give them silly nicknames and turn up to meetings in dungarees despite the university’s suit and tie convention. When a student’s father complained about a ‘socialist’ book Tiebout had set his son as part of his coursework, Tiebout impishly got the dean to send a letter back stating, ‘This is to inform you that Professor Tiebout is not a socialist; he is a communist.’1 Tiebout was not in fact a communist: he was simply a mischief-maker.

Tiebout could not know it then, but his hastily drafted article would eventually become one of the most widely cited articles in economics.4 A phrase in that conversation with Leven – ‘revealed preference’ – ought to twitch the antennae of any mainstream economist. Tiebout was referring to Revealed Preference Theory, which the US economist Paul Samuelson had created in 1938. The basic idea was that while you can’t insert psychological probes directly into people’s minds to figure out their consumer preferences, you can have the next best thing: if you study their buying habits you can reveal their preferences and plug this data into the Chicago School’s elegant mathematical models and graphs. This data will allow you to study the effects of government policies, and subject it all to the penetrating analyses of market economics. By the 1950s the theory was already quite widely used for understanding consumer behaviour. But when you switched away from consumers and markets and tried to apply the model to public services like schools, roads or hospitals there was a snag, which Samuelson himself had laid out in a paper in 1954.

But when you switched away from consumers and markets and tried to apply the model to public services like schools, roads or hospitals there was a snag, which Samuelson himself had laid out in a paper in 1954. And it was a biggy: the so-called free-rider problem. People will happily consume public services, Samuelson explained, but they like to dodge the taxes that pay for these things. The free-rider problem means that you can’t get people to reveal their preferences regarding taxes and public services, so you can’t shoehorn this stuff into the Chicago School’s elegant mathematical models to determine optimal levels of taxes and public spending. Government and democratic politics had to step in and deal with this one, and the economists wouldn’t get a look-in. Ouch. Tiebout’s 1956 paper claimed to have found the riposte.5 There was a way to envisage a market for public services and taxes after all, he explained, and here’s how. Samuelson might be right that you couldn’t apply market analysis to the US federal government, Tiebout reasoned, but you could do so with local governments.


Undoing the Demos: Neoliberalism's Stealth Revolution by Wendy Brown

Affordable Care Act / Obamacare, bitcoin, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, corporate governance, credit crunch, crowdsourcing, David Brooks, Food sovereignty, haute couture, immigration reform, income inequality, invisible hand, labor-force participation, late capitalism, means of production, new economy, obamacare, occupational segregation, Philip Mirowski, Ronald Reagan, sexual politics, shareholder value, sharing economy, The Chicago School, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trickle-down economics, Washington Consensus, Wolfgang Streeck, young professional, zero-sum game

There was, first, the Ordoliberal or Freiburg School, comprising sociologists, economists, and philosophers, which emerged in Germany and Austria in the mid-1930s and gained serious traction at the close of World War II. On the other side of the Atlantic, the Chicago School of economics emerged in the 1950s. Foucault identifies F. A. Hayek as a critical intellectual link between the two schools and chief inspiration of “American anarcho-capitalism”; Hayek was raised on Ordoliberalism, but after spending time in the United States in the 1950s was eventually appointed at the University of Freiburg in 1962, “thus closing the circle.”26 Foucault devotes much of lecture 5 to the major differences between the two schools. He notes that the Ordo School was reacting C h a r t in g N eo l ib e r a l P o l i t i c a l R at i o n a l i t y 59 to Nazism and fascism, while the Chicago School was reacting to New Deal Keynesianism, and he elaborates their distinctive intellectual positions on the nature of the economy, state, and freedom.

He notes that the Ordo School was reacting C h a r t in g N eo l ib e r a l P o l i t i c a l R at i o n a l i t y 59 to Nazism and fascism, while the Chicago School was reacting to New Deal Keynesianism, and he elaborates their distinctive intellectual positions on the nature of the economy, state, and freedom. Among the most important of these is the Ordoliberals’ deep appreciation of the state’s role in facilitating competition and the Chicago School’s development of the theory of human capital. The Ordoliberals, according to Foucault, also provide more latitude for state governance of the social, for protecting “warm moral and cultural values” antithetical to the “cold mechanism of competition.”27 (Ironically, this makes for greater conviviality between neoliberalism and neoconservatism in its European variant, yet it is in America that neoconservatism and neoliberalism became so thickly entwined in the 1980s.) 28 Foucault describes American neoliberalism as “more complete and exhaustive” in its promulgation of competition for every sphere, its unlimited extension of the market to every endeavor, activity and problem. 29 There is much more separating the European and American schools of neoliberalism, but given the extent to which these separate intellectual inf luences have now intersected and even fused — for example, the Ordo emphasis on extending the formal rationality of the market and the Chicago emphasis on extending its concrete mechanisms have come together in a contemporary governing rationality that features both — I will not on dwell further on these differences.

But these changes mark something apart from the political rationality of neoliberalism. Political rationality does not originate or emanate from the state, although it circulates through the state, organizes it, and conditions its actions. Political rationality also differs from a normative form of reason, although the former emanates from and is suffused with the latter. Neoliberalism might have remained only a form of reason generated by Ordoliberalism and the Chicago School, without ever becoming a political rationality. Indeed, this seemed its likely fate at midcentury, although Foucault (and Daniel Stedman Jones, in his history of neoliberal thought) insist that postwar Germany was already organized by it.5 Political rationality could be said to signify the becoming actual of a specific normative form of reason; it designates such a form as both a historical force generating and relating specific kinds of subject, society, and state and as establishing an order of truth by which conduct is both governed and measured.


On the Move: Mobility in the Modern Western World by Timothy Cresswell

British Empire, desegregation, deskilling, Frederick Winslow Taylor, global village, illegal immigration, mass immigration, moral panic, Rosa Parks, technoutopianism, The Chicago School, transcontinental railway, traveling salesman, urban planning

Before the general use of these instruments of precision in time, there was a wider RT52565_C001.indd 17 4/13/06 7:21:44 AM 18 • On the Move margin for all appointments, a longer period was required and prepared for, especially in travelling—coaches of the olden period were not expected to start like steamers or trains, on the instant— men judged of the time by probabilities, by looking at the sun, and needed not, as a rule, to be nervous about the loss of a moment, and had incomparably fewer experiences wherein a delay of a few moments might destroy the hopes of a lifetime.59 Early American sociologists at the Chicago School of Sociology also placed mobility at the center of their understanding of the world. Robert Park had studied with Simmel in Heidelberg. He inherited many of his ideas about the mobile nature of urban life. Mobility was used by Park’s student, Nels Anderson, to differentiate the city from the country. The city, Anderson wrote, “is more mobile, mobility being a characteristic of its life just as stability is characteristic of rural life.”

To his student, Nels Anderson, mobility threatened to undo place and create chaos. “The mobility of the city” he wrote, “detaches and undomesticates the urban man” and “with this independence comes a loss of loyalty.” This loss of loyalty imbues the city dweller with his freedom, but only “at the cost of his locus.”38 Mobility, then, plays a central role in the work of Burgess, Robert Park, Nels Anderson, and others at the Chicago School. It is the disorder produced by mobility (among other things) that was at the heart of their view of society. It is certainly not all bad. Mobility is, after all, what separates the city from the country. Mobility is connected to civilization, progress, and freedom as well as deviance and destitution. But the mobility is still framed within a moral geography of place and locus that is constantly threatened.

He provides the reader with a flood of facts and figure about the frequency and velocity of mobility undertaken by the new nomads. Its purpose is to diagnose a pathology—future shock—a sense of disorientation and overload that modern man needs to react to quickly. The prevalence of mobility in modern life is, to Toffler, most definitely a problem. In this sense, his anxieties sit snugly beside those of his sociological forebears at the Chicago School. Indeed, mobility presents itself as a problem in many of the sociological texts of the twentieth century such as William Whyte’s The Organization Man and the Lynds’ Middletown.46 Sedentarism Made Material If the metaphysics of sedentarism were limited to the internal scribblings of geographers, sociologists, and cultural theorists, it could be considered harmless enough. But the view of the world that attaches negative moral and ideological codings to mobility extends well beyond the ivory tower to pervade thought and practice in multiple domains of social and cultural life.


pages: 332 words: 106,197

The Divide: A Brief Guide to Global Inequality and Its Solutions by Jason Hickel

Andrei Shleifer, Asian financial crisis, Atahualpa, Bartolomé de las Casas, Bernie Sanders, Bob Geldof, Bretton Woods, British Empire, Cape to Cairo, capital controls, carbon footprint, clean water, collective bargaining, colonial rule, David Attenborough, David Graeber, David Ricardo: comparative advantage, declining real wages, dematerialisation, Doha Development Round, Elon Musk, European colonialism, falling living standards, financial deregulation, Fractional reserve banking, Francisco Pizarro, full employment, Hans Rosling, happiness index / gross national happiness, Howard Zinn, income inequality, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Watt: steam engine, laissez-faire capitalism, land reform, land value tax, liberal capitalism, Live Aid, Mahatma Gandhi, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, Nelson Mandela, offshore financial centre, oil shale / tar sands, out of africa, plutocrats, Plutocrats, purchasing power parity, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scramble for Africa, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, structural adjustment programs, The Chicago School, The Spirit Level, trade route, transatlantic slave trade, transfer pricing, trickle-down economics, Washington Consensus, WikiLeaks, women in the workforce, Works Progress Administration

Boyce, ‘Congo’s odious debt: external borrowing and capital flight in Zaire’, Development and Change 29, 1998, pp. 195–217. 32 ‘“We hereby commit ourselves to …”’ This passage represents small portions of the text of the ‘Common Man’s Charter’ with some sentences truncated and merged. 33 ‘The elite – those whose wealth …’ The argument that the elite class was looking for a solution to Keynesianism has been made compellingly by David Harvey in A Brief History of Neoliberalism. 34 ‘Share in national income … 1913–1998’ David Harvey, A Brief History of Neoliberalism, (Oxford: Oxford University Press, 2005), p. 17. 35 ‘These policies were improving people’s …’ Klein, The Shock Doctrine, p. 53. 36 ‘Before long, the Chicago School …’ Klein, The Shock Doctrine, p. 56. 37 ‘Juan Gabriel Valdés, a Chilean …’ Juan Gabriel Valdés, Pinochet’s Economists: The Chicago School in Chile (Cambridge: Cambridge University Press, 1995), p. 13. Classes were also held at the Catholic University of Santiago, which partnered with the University of Chicago. 38 ‘His victory was an impressive …’ The International Telephone and Telegraph Company (ITT) paid out $700,000 to Alessandri, and the company’s president paid an additional $1 million to the CIA to help manipulate the elections.

And neoliberalism abandoned any pretence to neutrality in favour of a more politically charged agenda: it was against subsidies and protections for the working class and regulations that supported unions, but was quite comfortable with subsidies and protections for the rich and regulations that supported large corporations. During the 1970s, neoliberal ideas were celebrated by the upper classes and the corporate world, who were thrilled to have an academic mouthpiece – in the form of Friedman and the University of Chicago – to lend their economic agenda an aura of legitimacy. Before long, the Chicago School was flush with corporate donations.36 There was only one problem: there was no way that ordinary citizens were going to buy into it, since Keynesianism had delivered them such monumental gains. It was not possible to acquire the political capital necessary to make these radical changes in the US or Europe. But it was possible to test these theories abroad, in the meantime. The Chile Experiment During the 1950s and 1960s, the United States had become particularly concerned about Chile.

The crisis was simply an excuse for rolling out an economic agenda that Washington had long been seeking to impose. * From the 1950s through the 1970s, Western powers had struggled to prevent the rise of developmentalism in the South. What they failed to accomplish through piecemeal coups and covert intervention, the debt crisis did for them in one fell swoop. The SAPs pushed the very same policies that the Chicago School had tested out in Chile, but instead of being imposed through violence, they were imposed by leveraging debt. Debt became a powerful mechanism for pushing neoliberalism around the world, and for rolling back the developmentalist agenda Washington found so threatening – more powerful, even, than the coups that had been used in the past, and without the embarrassing inconvenience of dictators and torture chambers.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

From different perspectives, that benevolent view came to be criticized by scholars associated with the School of Public Choice (of which James Buchanan and Gordon Tullock were major exponents in the United States, and Alan Peacock in the United Kingdom), and by scholars associated with the Chicago School (mostly connected with Milton Friedman, George Stigler, R. H. Coase, and some others). The work of Hayek and of other economists of the Austrian School also played some role. However, that work was in some ways distinct from that of the Chicago School, and it is 314 Termites of the State a bit difficult to place the full work of Hayek and of the Austrian School, which remained less known to the general public in the United States, especially at the more popular level, even though Hayek spent many years at the University of Chicago.

Some influential economists, including Milton Friedman and Robert Lucas at the University of Chicago and Robert Barro at Harvard, had challenged the countercyclical fiscal policy with intellectually appealing, theoretical arguments, largely based on the view, then gaining currency, that economic agents are rational in their behavior. The debate that followed 62 Termites of the State was, in some significant aspects and with due changes, a preview of the one that would follow the financial crisis of 2007. Milton Friedman and some of the economists around him at the University of Chicago (who came to be identified as members of the “Chicago School”), as well as economists associated with James Buchanan in Virginia (the “School of Public Choice”), had found weaknesses not only in the prevailing Keynesian countercyclical policy but also in the view that a growing government role would necessarily promote the public interest and general welfare. They raised pertinent questions about the impact of a larger and growing government role, a role that required high taxes, or increasing public debt, to finance high public spending, and more regulations.

As the recent and ongoing debate on developments in Greece and in other member countries of the European Monetary Union has highlighted, the absence, or the nonobservance, of good rules can create difficulties for the role that the government plays in a market economy (see Tanzi, 2013b). The government failures that (especially) critics from the School of Public Choice and the Austrian School (and to some extent those of the Chicago School) believe to be natural are, in part, of a different nature than the failures caused by an absence of competent administrators. They attribute the failures not so much to the low quality of the employees in the public administration, but to more fundamental issues that could not be corrected by simply hiring more and better-trained administrative staff. Weak institutions and unclear or poor rules within the public sector; specific attitudes and biases on the part of policymakers and high-level bureaucrats; pressures coming from powerful vested interests; rent-seeking in different parts of the public sector; increasing corruption and governance problems in general, at both the administrative and the political level; and, in more recent years, new problems that have become intrinsically more difficult to solve, due to the fact that markets have become more complex, public sectors have become larger and more difficult to control, and some problems have become global – all of these concerns are making government failures more likely, even with much improved national, 69 70 Termites of the State public administrations.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy, zero-sum game

They lost these debates in academic and policy circles partly for methodological reasons – their rejection of the growing role of mathematics in economics – but far more for political ones – the opposition to any policy response to the greatest crisis that had ever befallen capitalist economies, other than letting it burn itself out. Paradoxically, their defeat in academe liberated Austrian economics. It has become politically influential, principally in the US, where Austrian economics has become a favourite economic ideology of libertarians and so of parts of the modern Republican Party: former Congressman Ron Paul is a devotee. The reason for this appeal is that, unlike the Chicago School, in which the late Milton Friedman was the dominant post-war figure, the Austrian economists see no case for a government role in managing the market economy, including even the money supply. Many contemporary ‘Austrians’ favour a return to the gold standard. Naturally, they are opposed to every element of the new (or old) orthodoxy on monetary and financial policy. They are purist adherents of laissez-faire.

Indeed, we must assume at least a degree of failure. Henry Simons and the Chicago Plan Mises concluded that the ability of private institutions to create debt-backed money out of thin air, as a by-product of their lending (as discussed above), needed to be brought under control, via 100 per cent reserve banking – that is, a system in which deposits are backed by central-bank reserves, one to one. The Chicago School – another group of free-market economists – came to the same conclusion in the 1930s, for the same reason: they concluded that the bank-based monetary system (which we still have today) was itself unstable and so destabilized the economy. The economists involved were hugely distinguished and respected: Frank Knight (1885–1972), who pioneered the crucial distinction between calculable risk and uncertainty; Henry Simons (1899–1946), author of the most complete version of the Chicago monetary plan; Irving Fisher (1867–1947), the most famous pre-Second World War American economist; and, after the war, Milton Friedman (1912–2006).40 Again, as with the Austrians, these free-market economists concluded that the ability to create credit-backed money had to be ended if the market economy was to be protected from ruinous crises.

Republicans should love that! To this should be added savings on government-debt interest (on the assumption that these would not be interest-earning deposits) and the earnings on any money lent to the private sector. Also dramatic would be the implications for the operation of monetary policy. The central bank would have direct control over the money supply. It could be told to follow a strict rule, as the Chicago School proposed, which would include a precise inflation target. The central bank could set any interest rate it liked, including negative rates, up to the point that people preferred to hold cash instead of deposits. The stabilization of the economy would become a relatively simple challenge because the main obstacle to it would have been eliminated. Not surprisingly, the opposition of the banking industry forced abandonment of the Chicago Plan in the 1930s.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

which is the nearest ­thing to the practice of magic that occurs among professional economists.”32 He said that he always felt he should have written a critique of Milton Friedman’s Essays in Positive Economics, “­every bit as dangerous as that of Keynes.”33 Unlike the Chicago School, the Geneva School opposed the mathematization of economics and thus foreclosed the possibility of extensive forecasting and modeling of the economy. It rejected both rational expectations and perfect competition and held the claim of determining “efficiency” or “optimal” outcomes to be both quixotic and hubristic. In recent years Petersmann has even laid the blame for the financial crisis of 2008 at the feet of the “efficient markets hypothesis” of the Chicago School that “market prices reflect all relevant information.”34 As represented by Petersmann’s own advocacy for the WTO as a “worldwide economic constitution,” what I call the Geneva School combined the Austrian emphasis on the limits of knowledge and the global scale with the German ordoliberal emphasis on institutions and the moment of the po­liti­cal decision.35 To disavow the existence or visibility of “economies” themselves intentionally makes proj­ects of social justice, equality, or re­distribution unthinkable.

GENEVA SCHOOL, NOT CHICAGO SCHOOL In 1983 one of Hayek’s students, the leading international economic ­lawyer Ernst-­Ulrich Petersmann, wrote, “The common starting point of the neoliberal economic theory is the insight that in any well-­functioning market economy the ‘invisible hand’ of market competition must by necessity be complemented by the ‘vis­i­ble hand’ of the law.” He listed the well-­k nown neoliberal schools of thought: the Freiburg School, birthplace of German ordoliberalism, and home to Walter Eucken and Franz Böhm; the Chicago School, identified with Milton Friedman, Aaron Director, Richard Posner, and ­others; and the Cologne School of Ludwig Müller-­Armack. Then he cited a virtual unknown: the Geneva School.41 Who or what was the Geneva School? The following chapters pres­ent a narrative about a strain of neoliberalism that has been neglected by 8 GLOBALISTS historians. I introduce a set of thinkers who have not been central in the En­glish lit­er­a­ture and reframe t­ hose like Hayek who have been.

The distinct contributions of the Geneva School to neoliberal thought are often neglected in English-­language discussions. Most histories of the neoliberal movement begin in continental Eu­rope with the meetings in the 1930s and 1940s but shift their gaze to the United States and ­Great Britain ahead of the neoliberal breakthrough of Reagan and Thatcher in the 1980s. This shift is accompanied by a pointed focus on the Chicago School, and Friedman in par­tic­u­lar. Even though some welcome attention is now being given to the field of law and economics and the public choice theory of James M. Buchanan and ­others of the ­Virginia School, the overall tendency has been ­toward an understanding of neoliberal thought that tilts ­toward the Anglo-­American side.42 What this misses is the importance of the contributions of ­those who remained in continental Eu­rope or who, like Hayek, returned to Eu­rope.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Monetarism derived much of its argument from the Cambridge equation of money demand on which Keynes had done much work before he wrote the General Theory. It shifted the policy focus away from fiscal policy and toward money supply, and linked the budget deficits with loss of control over money supply. At Chicago, Friedman had inaugurated a research program in the demand for money and the study of hyperinflations through history. This was to undermine the weakness in the received Keynesian theory. The Chicago School argued that the quantity theory was a theory of the demand for money based on the use of money for transactions and precautionary purposes. This linked the Chicago tradition to the pre-General Theory Cambridge tradition of Marshall and Pigou and their work on the holding of money balances. Using this tradition, the demand for money was substantially linked to nominal income. This contrasted with Keynes’s theory of the demand for money, which focused largely on the speculative motive and the role of interest rates.

The other strand of Chicago was to emphasize the role of expectations. Keynes had also emphasized the role of expectations in his theory. Short-term expectations determined the output decisions of the producer, and long-term expectations influenced by “animal spirits” determined investment. Keynes had not translated these ideas into algebra; indeed he believed long-term expectations could not be determined by rational procedures. The Chicago School used the idea of “adaptive expectations” to study people’s reaction to inflation. Adaptive expectations are predicated on the idea that our expectations of what will happen tomorrow are based on an average of today’s events and those of the recent past. If inflation has been creeping up, we would expect it to go on rising further. We would then bring our purchases forward to avert the higher prices; but that would make prices more likely to rise further.

If the market always gets it right, as the investors and the regulators had been told, then why were people surprised by the sudden collapse in equity prices and capital values of previously profitable firms? Alan Greenspan, as Chairman of the Federal Reserve from 1987 to 2006, had presided over the financial revolution, globalization and the long boom. He believed in free markets and had accepted the theories emanating from the Chicago School of economics. Once the boom collapsed, he recanted. In his testimony to a committee of the US House of Representatives, he explained what happened. The exposition is illuminating: It was the failure to properly price such risky assets [mortgage backed securities and collateral debt obligations] that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts, supported by major advances in computer and communications technology.


pages: 462 words: 129,022

People, Power, and Profits: Progressive Capitalism for an Age of Discontent by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, barriers to entry, basic income, battle of ideas, Berlin Wall, Bernie Madoff, Bernie Sanders, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, central bank independence, clean water, collective bargaining, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crony capitalism, deglobalization, deindustrialization, disintermediation, diversified portfolio, Donald Trump, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, Firefox, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, gig economy, global supply chain, greed is good, income inequality, information asymmetry, invisible hand, Isaac Newton, Jean Tirole, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John von Neumann, Joseph Schumpeter, labor-force participation, late fees, low skilled workers, Mark Zuckerberg, market fundamentalism, mass incarceration, meta analysis, meta-analysis, minimum wage unemployment, moral hazard, new economy, New Urbanism, obamacare, patent troll, Paul Samuelson, pension reform, Peter Thiel, postindustrial economy, price discrimination, principal–agent problem, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, Richard Thaler, Robert Bork, Robert Gordon, Robert Mercer, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, self-driving car, shareholder value, Shoshana Zuboff, Silicon Valley, Simon Kuznets, South China Sea, sovereign wealth fund, speech recognition, Steve Jobs, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, two-sided market, universal basic income, Unsafe at Any Speed, Upton Sinclair, uranium enrichment, War on Poverty, working-age population

Government attempts to interfere with the wonderful workings of the market—even curbing monopolies—were both unnecessary and likely to be counterproductive. Thus, enforcers of antitrust laws worried more about the downside risk of finding a practice noncompetitive when it was really a reflection of the complex ways in which efficient markets often worked than about the risk of allowing a noncompetitive practice to persist.66 The Chicago School had a disproportionate influence on our politics and our courts. It led to the weakening of antitrust, as courts simply assumed that markets were competitive and efficient, and any behavior that might seem anticompetitive was in fact nothing more than efficient responses to new market complexities. Enormous burdens of proof were placed on anyone trying to claim that a firm had engaged in anticompetitive practices.

They’ve used this market power to exploit their consumers, their workers, and the political system, in ways that have resulted in lower growth, even in a supposedly innovative economy. Even worse, this growth benefits only a fraction of the country. Indeed, our corporate leaders have even figured out how to exploit their own shareholders, taking advantage of deficiencies in our rules of corporate governance to pay themselves outsized compensation.89 Our economy has changed a great deal since our antitrust laws were first introduced and even since the Chicago School interpretations came to prevail; our understanding of economics has changed too; and today we can better grasp the failures of the existing legal framework. But the underlying political and economic concerns about power and exploitation that drove the original legislation are still present—even more so. Competition law has been excessively narrowed, and excessively influenced by presumptions concerning a competitive marketplace.

There also needs to be close post-merger review, with a credible threat that if the merger does result in higher prices when what was promised was just the opposite, the merger may be undone. 74.Chapter 6 explains how regulations requiring net neutrality are required to avoid the abuse of market power arising from such conflicts of interest by the internet companies. Traditionally, antitrust has focused on mergers within an industry, and presumed that vertical mergers are not anticompetitive. But with the recognition that in many markets competition is limited, vertical mergers are now understood to have “horizontal” effects and to reduce competition even further. The continuing influence of the Chicago School, which begins with the presumption that markets are basically competitive, can be seen in recent court decisions, e.g., in allowing the merger of AT&T and Time Warner (currently under appeal). See also “Brief for 27 Antitrust Scholars as Amici Curiae in Support of Neither Party,” United States Of America, Plaintiff-Appellant, v. AT&T Inc.; Directv Group Holdings, LLC; And Time Warner Inc., Defendants-Appellees.


pages: 515 words: 132,295

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, zero-sum game

It was, after all, the home of Milton Friedman, the economist known perhaps more than any other for the “markets know best” argument. Educated at both Chicago and Columbia, Friedman gained exposure to the McNamara-style systems analysis via a stint at the US Navy–sponsored Statistical Research Group (which operated at Columbia during the war). Two other young economists he worked with there, George Stigler and W. Allen Wallis, also went on to become professors at Chicago. Together they developed what became known as the Chicago School of economics. Its antigovernment, antiregulation, fanatically pro-market ideology has dominated American economics and business education ever since. With the support of major business foundations like Ford, Chicago began pulling in the biggest economic names in the field. The Walgreen Foundation, which had been a longtime supporter of the school, shifted its financial grants to the business program.

The result was a very finance-driven approach to business education, in which the central questions were no longer about companies, but about markets—a way of thinking that one recent account describes as “free-market-oriented and interested only in the predictive power of theory, irrespective of the realism of assumptions.”32 This new approach may have been more theoretical than practical, but it was quickly embraced and became de rigueur for anyone who wanted a career in corporate America or the finance industry. MAXIMIZE VALUE—BUT FOR WHOM? The key assumption of the Chicago School, one that Milton Friedman himself upheld devoutly, was that the purpose of the corporation was to maximize financial value. As Friedman famously said back in 1970, “the social responsibility of business is to increase its profits.”33 This went hand in hand with another idea, which was that the share price of a firm always perfectly reflected all known information, and thus stock prices were the best overall measure of corporate value.

Despite the increase in borrowing during the boom days before 2008, and the collapse in borrowing during the recession, corporations invested at exactly the same rate in the five years after the meltdown as they did in the few years preceding it: around 10 cents of each borrowed dollar. The other 90 cents (which varied in dollar amounts depending on credit and growth conditions) primarily went to shareholder payouts.28 That means that far from funding the economy that you and I live and work in, stock markets now basically fund payouts to the wealthy. This “shareholder revolution,” based on the Chicago School notion that maximizing shareholder value is the purpose of corporate America (as covered in chapter 3), is the single most important reason why high corporate profits and unprecedented cash hoards have failed to translate into jobs, wage growth, and innovation. All of this raises a profound question: What is a company for? We thought that companies, like banks themselves, were supposed to be entities that generated wealth broadly, by allocating capital to productive purposes—investing in people, factories, new ideas, and businesses.


pages: 357 words: 95,986

Inventing the Future: Postcapitalism and a World Without Work by Nick Srnicek, Alex Williams

3D printing, additive manufacturing, air freight, algorithmic trading, anti-work, back-to-the-land, banking crisis, basic income, battle of ideas, blockchain, Boris Johnson, Bretton Woods, business cycle, call centre, capital controls, carbon footprint, Cass Sunstein, centre right, collective bargaining, crowdsourcing, cryptocurrency, David Graeber, decarbonisation, deindustrialization, deskilling, Doha Development Round, Elon Musk, Erik Brynjolfsson, Ferguson, Missouri, financial independence, food miles, Francis Fukuyama: the end of history, full employment, future of work, gender pay gap, housing crisis, income inequality, industrial robot, informal economy, intermodal, Internet Archive, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kickstarter, late capitalism, liberation theology, Live Aid, low skilled workers, manufacturing employment, market design, Martin Wolf, mass immigration, mass incarceration, means of production, minimum wage unemployment, Mont Pelerin Society, neoliberal agenda, New Urbanism, Occupy movement, oil shale / tar sands, oil shock, patent troll, pattern recognition, Paul Samuelson, Philip Mirowski, post scarcity, post-work, postnationalism / post nation state, precariat, price stability, profit motive, quantitative easing, reshoring, Richard Florida, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Slavoj Žižek, social web, stakhanovite, Steve Jobs, surplus humans, the built environment, The Chicago School, The Future of Employment, Tyler Cowen: Great Stagnation, universal basic income, wages for housework, We are the 99%, women in the workforce, working poor, working-age population

Neoliberalism sets the agenda for what is realistic, necessary and possible. While the economic crisis of 2008 has upset the blind belief in neoliberalism, it nevertheless remains an entrenched part of our worldview – so much so that it is difficult even for its critics to picture coherent alternatives. Yet this ideology of neoliberalism did not emerge fully formed from the minds of Milton Friedman or Friedrich Hayek, or even the Chicago School, and its global hegemony did not arise inevitably from capitalism’s logic. In its origins, neoliberalism was a fringe theory. Its adherents found it difficult to gain employment, were often untenured, and were mocked by the Keynesian mainstream.1 Neoliberalism was far from being the world-dominating ideology it would eventually become. The question this chapter will focus on is: How did a small band of neoliberals manage to reshape the world so radically?

A chance meeting with a Swiss businessman in 1945 gave Hayek the financial means to put his ideas into action.17 Thus was born the Mont Pelerin Society (MPS): a closed intellectual network that provided the basic ideological infrastructure for neoliberalism to ferment.18 It is no exaggeration to say that almost all of the important figures in the postwar creation of neoliberalism were in attendance at its first meeting in 1947, including the Austrian economists, the UK liberals, the Chicago School, the German ordoliberals and a French contingent.19 From its beginnings, the MPS was consciously focused on changing political common sense and sought to develop a liberal utopia.20 It explicitly understood that this intellectual framework would then be actively filtered down through think tanks, universities and policy documents, in order to institutionalise and eventually monopolise the ideological terrain.21 In a letter to those he had invited, Hayek wrote that the purpose of the MPS was to enlist the support of the best minds in formulating a programme which has a chance of gaining general support.

Businesses funded projects to turn his work into popular television shows, taking the media terrain by storm.42 These technological tools were the essential means he used to diffuse his economic vision to policymakers and the public. Newspapers such as the Wall Street Journal, Daily Telegraph and Financial Times paralleled this effort, shaping the public’s perspective by invoking neoliberal policies at every opportunity.43 Business schools and management consultancies also began to adopt and spread neoliberal ideas about corporate forms, and the Chicago School became a global beacon of neoliberal thought.44 Such institutions were crucial for the spread of neoliberal hegemony, since they were often the training grounds of the global elite.45 Individuals would come to these neoliberal US schools and then return to their own countries with the neoliberal ideology inculcated in them. By the 1970s, therefore, a full-spectrum infrastructure had developed to promulgate neoliberal ideas.


pages: 850 words: 254,117

Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low cost carrier, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, road to serfdom, Ronald Reagan, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Vanguard fund, War on Poverty

What could be followed, however, was the slow erosion of the Keynesian orthodoxy, especially after the simultaneous rise of inflation and unemployment to high levels during the 1970s undermined the notion of the government making a trade-off between the two, as suggested by the Phillips Curve. When Professor Milton Friedman of the University of Chicago won a Nobel Prize in economics in 1976, it marked a growing recognition of non-Keynesian and anti-Keynesian economists, such as those of the Chicago School. By the last decade of the twentieth century, a disproportionate share of the Nobel Prizes in economics were going to economists of the Chicago School, whether located on the University of Chicago campus or at other institutions. The Keynesian contribution did not vanish, however, for many of the concepts and insights of John Maynard Keynes had now become part of the stock in trade of economists in all schools of thought. When John Maynard Keynes’ picture appeared on the cover of the December 31, 1965 issue of Time magazine, it was the first time that someone no longer living was honored in this way.

However far economists have moved beyond the medieval notion of a fair and just price, that concept still lingers in the background of much present-day thinking among people who speak of things being sold for more or less than their “real” value and individuals being paid more or less than they are “really” worth, as well as in such emotionally powerful but empirically undefined notions as price “gouging.” From more or less isolated individuals writing about economics there evolved, over time, more or less coherent schools of thought, people writing within a common framework of assumptions—the medieval scholastics, of whom Thomas Aquinas was a prominent example, the mercantilists, the classical economists, the Keynesians, the “Chicago School,” and others. Individuals coalesced into various schools of thought even before economics became a profession in the nineteenth century. THE MERCANTILISTS One of the earliest schools of thought on economics consisted of a group of writers called the mercantilists, who flourished from the sixteenth through the eighteenth centuries. In a motley collection of writings, ranging from popular pamphlets to a multi-volume treatise by Sir James Steuart in 1767, the mercantilists argued for policies enabling a nation to export more than it imports, causing a net inflow of gold to pay for the difference.

{xliv} John Maynard Keynes’ 1936 book, The General Theory of Employment Interest and Money, became the most famous and most influential economics book of the twentieth century. By mid-century, it was the prevailing orthodoxy in the leading economics departments of the world—with the notable exception of the University of Chicago and a few other economics departments in other universities largely staffed or dominated by former students of Milton Friedman and others in the “Chicago School” of economists. To the traditional concern of economics with the allocation of scarce resources which have alternative uses, Keynes added as a major concern those periods in which substantial proportions of a nation’s resources—including both labor and capital—are not being allocated at all. This was certainly true of the time when Keynes’ General Theory was written, the Great Depression of the 1930s, when many businesses produced well below their normal capacity and as many as one-fourth of American workers were unemployed.


pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

1960s counterculture, affirmative action, business cycle, corporate governance, corporate raider, creative destruction, David Brooks, deindustrialization, East Village, fixed income, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, mandatory minimum, market fundamentalism, McMansion, microcredit, moral hazard, new economy, New Urbanism, offshore financial centre, oil shock, old-boy network, plutocrats, Plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, Robert Bork, rolodex, Ronald Reagan, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional, zero-sum game

In the field of economics, a new generation of free-market scholars launched an assault on prevailing liberal orthodoxies about the need for active government intervention in the economy. These attacks were spearheaded by the Chicago School of economics, so named because its leading luminaries—including Friedrich von Hayek and Milton Friedman—taught at the University of Chicago. These economists argued that market solutions would create more individual opportunity than government approaches in nearly every case—from broadly promoting the prosperity of the economy to ensuring affordable housing and health care for all. By the 1980s, the ideas of the Chicago School—and students and disciples—had fanned out across the entire discipline of economics.11 Free-market philosophy also found fertile ground in the battles over social policy. Conservatives took aim at the safety net that had appeared so belatedly in American society.

On Webster Hubbell's problems and rationales, see Ellen Joan Pollock, "Hubbell Receives 21-Month Prison Sentence for Bilking His Law Firm and Clients," Wall Street Journal, 29 June 1995, B4; and Adam Liptak, "Stop the Clock? Critics Call the Billable Hour a Legal Fiction," New York Times, 29 October 2002, G7. [back] 10. Schiltz, "On Being a Happy, Healthy, and Ethical Member of an Unhappy, Unhealthy, and Unethical Profession," 807. [back] 11. For a good summary of the Chicago School's rise, see Daniel Yergin and Joseph Stanislaw, The Commanding Heights: The Battle for the World Economy (New York: Simon & Schuster, 1998/2002), 123–31. [back] 12. Charles Murray, Losing Ground: American Social Policy, 1950–1980 (New York: Basic Books, 1995). See also Myron Magnet, The Dream and the Nightmare: The Sixties Legacy to the Underclass (New York: William Morrow, 1993). [back] 13.


pages: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, market bubble, market clearing, market fundamentalism, means of production, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, working-age population

Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts. And in the wake of the crisis, the fault lines in the economics profession have yawned wider than ever. Lucas says the Obama administration’s stimulus plans are “schlock economics,” and his Chicago colleague John Cochrane says they’re based on discredited “fairy tales.” In response, Brad DeLong of the University of California, Berkeley, writes of the “intellectual collapse” of the Chicago School, and I myself have written that comments from Chicago economists are the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten. What happened to the economics profession? And where does it go from here? As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system.

Freshwater economists who inveighed against the stimulus didn’t sound like scholars who had weighed Keynesian arguments and found them wanting. Rather, they sounded like people who had no idea what Keynesian economics was about, who were resurrecting pre-1930 fallacies in the belief that they were saying something new and profound. And it wasn’t just Keynes whose ideas seemed to have been forgotten. As Brad DeLong of the University of California, Berkeley, has pointed out in his laments about the Chicago School’s “intellectual collapse,” the school’s current stance amounts to a wholesale rejection of Milton Friedman’s ideas, as well. Friedman believed that Fed policy rather than changes in government spending should be used to stabilize the economy, but he never asserted that an increase in government spending cannot, under any circumstances, increase employment. In fact, rereading Friedman’s 1970 summary of his ideas, “A Theoretical Framework for Monetary Analysis,” what’s striking is how Keynesian it seems.

But it was inevitable that freshwater economists would find themselves trapped in this cul-de-sac: if you start from the assumption that people are perfectly rational and markets are perfectly efficient, you have to conclude that unemployment is voluntary and recessions are desirable. Yet if the crisis has pushed freshwater economists into absurdity, it has also created a lot of soul-searching among saltwater economists. Their framework, unlike that of the Chicago School, both allows for the possibility of involuntary unemployment and considers it a bad thing. But the New Keynesian models that have come to dominate teaching and research assume that people are perfectly rational and financial markets are perfectly efficient. To get anything like the current slump into their models, New Keynesians are forced to introduce some kind of fudge factor that for reasons unspecified temporarily depresses private spending.


pages: 222 words: 70,132

Move Fast and Break Things: How Facebook, Google, and Amazon Cornered Culture and Undermined Democracy by Jonathan Taplin

1960s counterculture, affirmative action, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, American Legislative Exchange Council, Apple's 1984 Super Bowl advert, back-to-the-land, barriers to entry, basic income, battle of ideas, big data - Walmart - Pop Tarts, bitcoin, Brewster Kahle, Buckminster Fuller, Burning Man, Clayton Christensen, commoditize, creative destruction, crony capitalism, crowdsourcing, data is the new oil, David Brooks, David Graeber, don't be evil, Donald Trump, Douglas Engelbart, Douglas Engelbart, Dynabook, Edward Snowden, Elon Musk, equal pay for equal work, Erik Brynjolfsson, future of journalism, future of work, George Akerlof, George Gilder, Google bus, Hacker Ethic, Howard Rheingold, income inequality, informal economy, information asymmetry, information retrieval, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, Kevin Kelly, Kickstarter, labor-force participation, life extension, Marc Andreessen, Mark Zuckerberg, Menlo Park, Metcalfe’s law, Mother of all demos, move fast and break things, move fast and break things, natural language processing, Network effects, new economy, Norbert Wiener, offshore financial centre, packet switching, Paul Graham, paypal mafia, Peter Thiel, plutocrats, Plutocrats, pre–internet, Ray Kurzweil, recommendation engine, rent-seeking, revision control, Robert Bork, Robert Gordon, Robert Metcalfe, Ronald Reagan, Ross Ulbricht, Sam Altman, Sand Hill Road, secular stagnation, self-driving car, sharing economy, Silicon Valley, Silicon Valley ideology, smart grid, Snapchat, software is eating the world, Steve Jobs, Stewart Brand, technoutopianism, The Chicago School, The Market for Lemons, The Rise and Fall of American Growth, Tim Cook: Apple, trade route, transfer pricing, Travis Kalanick, trickle-down economics, Tyler Cowen: Great Stagnation, universal basic income, unpaid internship, We wanted flying cars, instead we got 140 characters, web application, Whole Earth Catalog, winner-take-all economy, women in the workforce, Y Combinator

Bork centered his interpretation of antitrust laws in the Chicago school libertarian economic theories of Milton Friedman. Bork came to the University of Chicago in the late 1940s as a true believer in Roosevelt’s New Deal politics and started dating a similarly liberal undergraduate, Claire Davidson. But as he began to get attracted to the intersection of economics and law, the conservative professors who dominated the Chicago faculty discouraged any belief that government could or should play a role in regulating business. The free market needed to function, unencumbered by government regulation. Whether they were motivated by a desire to advance in academia or a true change in belief, both Bork and Davidson (whom he married in 1952) came under the sway of the Chicago school and subscribed to its theories. From that point on he fought government regulation and continued to fight it for the rest of his life.


pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

"Robert Solow", Albert Einstein, Bayesian statistics, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk tolerance, risk/return, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

Remarkably, given that Friedman had a well-deserved reputation as a ruthless and convincing debater, Black held his own, even if he brought what he knew, from Cambridge’s Keynesian roots and Modigliani’s influences, into the epicenter of anti-Keynesian theory. It must have been a remarkable spectacle to watch the two titans argue their perspectives. Despite or perhaps because of his notorious debates with Friedman, who was by then the Chicago School patriarch, Black thrived and managed to extend his stay. Black also encouraged Scholes to join him, which Scholes did in 1973. However, his shift from the three-piece suits of financial consulting to the elbow-patched life of a university professor did not sit as well with Black’s wife, Mimi. Frustrated and pregnant, she moved back to Cambridge without him. A year later, he and Scholes both returned to Cambridge with an invitation of permanent positions for both of them at the Sloan School at MIT.

In his treatment, interest rates can change, and the equation also permitted dividends, as a percentage of the stock price. But, while Merton’s derivation is the most elegant and general of the three approaches, and while he was encouraged to publish his results immediately, he declined to do so until Black and Scholes had successfully published their derivation. Assumptions for Merton’s derivation Merton’s intuition took a leaf out of the book of the Chicago School. In the absence of transaction costs, the correct combination of any two of the following instruments should be able to predict the third if arbitrage exists: the risk-free rate of return, a stock price, an option written on the stock price. In this case, his dynamic (continuous) trading strategy using just the stock and the risk-free rate of return should price the option as predicted by the Black-Scholes equation in the absence of arbitrage opportunities.


Once the American Dream: Inner-Ring Suburbs of the Metropolitan United States by Bernadette Hanlon

big-box store, correlation coefficient, deindustrialization, desegregation, edge city, feminist movement, housing crisis, illegal immigration, informal economy, longitudinal study, low skilled workers, low-wage service sector, manufacturing employment, McMansion, New Urbanism, Silicon Valley, statistical model, The Chicago School, transit-oriented development, urban sprawl, white flight, working-age population, zero-sum game

The New Suburban Demographic The impact of demographic shifts on neighborhood change has a long tradition in urban studies. Traditional urban theory tends to explain the socioeconomic transformation of neighborhoods in terms of the in- and outmigration of different groups. This is rooted in ecological models of city neighborhood change. Based on examinations of ethnic and racial areas in Chicago, urban sociologists of the Chicago School propose a theory of invasion and succession, where one group “invades” a city neighborhood and “succeeds” over the existing group of residents (Park, Burgess, and McKenzie 1967). Borrowing from ecological studies of the natural system, they examine the settlement patterns of newly arriving immigrants to the city, suggesting that these in-migrants entered specific neighborhoods in inner core areas of the city and displaced the previous population.

How are local jurisdictions dealing with changing demographics? Is increasing minority population in the suburbs leading to changes in suburban political leadership? How are nonwhite suburbs different from white suburbs along specific political, economic, and social dimensions? An additional research area surrounds the recent emergence of suburbs as the new immigrant gateways in the United States. Studies of immigrant clusters stretch back to the Chicago School and ecological models of neighborhood change. More recent theoretical debates focus on the sociospatial behavior of immigrant communities in the United States (Zelinsky and Lee 1998). Questions emerge about the assimilation process for immigrants settling in suburbs. The traditional model of assimilation suggests that 158 / Chapter 10 immigrants, initially settling in the inner city, eventually shift outward to the suburbs as they progress economically.


pages: 444 words: 138,781

Evicted: Poverty and Profit in the American City by Matthew Desmond

affirmative action, Cass Sunstein, crack epidemic, Credit Default Swap, deindustrialization, desegregation, dumpster diving, ending welfare as we know it, fixed income, ghettoisation, glass ceiling, Gunnar Myrdal, housing crisis, informal economy, Jane Jacobs, jobless men, Kickstarter, late fees, mass incarceration, New Urbanism, payday loans, price discrimination, profit motive, rent control, statistical model, superstar cities, The Chicago School, The Death and Life of Great American Cities, thinkpad, upwardly mobile, working poor, young professional

McKenzie would explain residential sorting as being steered by “a selective or magnetic force [emanating from various neighborhoods] attracting to itself appropriate population elements and repelling incongruous units, thus making for biological and cultural subdivisions of a city’s population.” R. D. McKenzie, “The Ecological Approach to the Study of the Human Community,” in Park, Burgess, and McKenzie, eds., The City, 63–79, 78. The most influential perspective on residential mobility—the residential attainment model—is deeply influenced by the Chicago School’s vision of mobility and neighborhood sorting. But those working within this tradition substitute the Chicago School’s emphasis on sentimentality and morality with one focused on instrumentality and economic advancement. The residential attainment model perceives mobility as a result of social climbing and views the city not as a patchwork of isolated moral worlds but as a geography of advantage and disadvantage. According to this perspective, when people move, they try to move up, parlaying economic capital for residential capital.

If it differs from her mother’s, he infers the applicant is divorced or remarried, a plus. If the surnames match, he considers the applicant a single mother by a single mother—and usually turns her down. 9. This is a very different way of understanding how certain people get sorted into certain neighborhoods, compared to conventional perspectives—one that pays attention to the people doing the sorting: the landlords. For the Chicago School, the city was a space of sentiments and its pattern of physical and social segregation primarily the result of tens of thousands of individual decisions based on where one best fits. “In the long run,” wrote Robert Park, “every individual finds somewhere among the varied manifestations of city life the sort of environment in which he expands or feels at ease.” See Robert Park, “The City: Suggestions for the Investigation of Human Behavior in the Urban Environment,” in The City, eds.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Money has always played a relatively large role in our nation’s politics. Donations from executives were helpful in the political career of Ronald Reagan and contributed to the Chicago School’s success in promoting deregulation. Friedman allowed his ideology to be exploited by executive suites, providing a fig leaf of respectability for their emerging narcissism. Writer Naomi Klein explains Friedman’s role in resurrecting laissez-faire economics this way: “If Friedman’s close friend Walter Wriston, head of Citibank, had come forward and argued that the minimum wage and corporate taxes should be abolished, he naturally would have been accused of being a robber baron. And that’s where the Chicago School came in. It quickly became clear that when Friedman, a brilliant mathematician and skilled debater, made those same arguments, they took on an entirely different quality.

The greatest redistribution of income ever in peacetime. But voters didn’t knowingly vote to give this gift. Weary of stagflation, they accepted the assurance of President Reagan and his team in 1980 that Reaganomics would lead to prosperity. And the two most important figures behind this narrative were economist Milton Freidman and philosopher and novelist Ayn Rand. Milton Friedman and the Chicago School The late Milton Friedman is rightfully considered one of America’s leading monetary economists. Drawing on Irving Fisher’s influential work, University of Chicago economists Friedman and Anna Schwartz popularized the role of money in creating and establishing price stability as an important precondition for economic growth. Their 1963 book, A Monetary History of the United States 1867–1960, is considered a seminal work of economics, even though Friedman’s monetarism theory was hopeless as a practical guide to action.31 But Friedman didn’t stop with economic theory.

It quickly became clear that when Friedman, a brilliant mathematician and skilled debater, made those same arguments, they took on an entirely different quality. They might be dismissed as wrongheaded, but they were imbued with an aura of scientific impartiality. The enormous benefit to having corporate views funneled through academic, or quasi-academic, institutions not only kept the Chicago School flush with donations, but, in short order, spawned the global network of right-wing think tanks to churn out Reaganesque propaganda.”45 President Reagan was an American success story of the first order, a self-made man who harbored strong sentiments for working class families by drawing on his own troubled childhood. The idealistic Ronald Reagan was ill-served by his trusted advisors. Even though he presented himself as president-turned-pitchman for a resurrected Gilded Age, the popular and charismatic Reagan was a complex figure.


pages: 309 words: 86,909

The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson, Kate Pickett

basic income, Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, God and Mammon, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labor-force participation, land reform, longitudinal study, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, moral panic, offshore financial centre, phenotype, plutocrats, Plutocrats, profit maximization, profit motive, Ralph Waldo Emerson, statistical model, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, upwardly mobile, World Values Survey, zero-sum game

Environmental influences on rates of violence have been Figure 10.4 There is more conflict between children in more unequal countries (based on percentages reporting fighting, bullying and finding peers not kind and helpful). Israel recognized for a long time. In the 1940s, sociologists of the Chicago School described how some neighbourhoods had persistent reputations for violence over the years – different populations moved in and out but the same poor neighbourhoods remained dangerous, whoever was living in them.223 In Chicago, neighbourhoods are often identified with a particular ethnic group. So a neighbourhood which might once have been an enclave of Irish immigrants and their descendants later becomes a Polish community, and later still a Latino neighbourhood. What the Chicago school sociologists drew attention to was the persistent effect of deprivation and poverty in poor neighbourhoods – on whoever lived there. In neighbourhoods where people can’t trust one another, where there are high levels of fear and groups of youths hanging around on street corners, neighbours won’t intervene for the common good – they feel helpless in the face of public disturbance, drug dealing, prostitution, graffiti and litter.


pages: 281 words: 86,657

The Great Inversion and the Future of the American City by Alan Ehrenhalt

anti-communist, big-box store, British Empire, crack epidemic, David Brooks, deindustrialization, Edward Glaeser, Frank Gehry, haute cuisine, Honoré de Balzac, housing crisis, illegal immigration, Jane Jacobs, manufacturing employment, mass immigration, McMansion, New Urbanism, Norman Mailer, Peter Calthorpe, postindustrial economy, Richard Florida, The Chicago School, The Death and Life of Great American Cities, too big to fail, transit-oriented development, upwardly mobile, urban decay, urban planning, urban renewal, walkable city, white flight, working poor, young professional

In 2002, Mayer had a white student population of 12.5 percent. In the past decade, that began to change. By 2007, the school was 27 percent white. It was in the process of conversion to magnet status, as a Montessori school in the lower grades and an International Baccalaureate program in the higher grades, with neighborhood residents guaranteed a place. This move generated criticism that the Chicago school system was mainly trying to make Mayer more attractive to affluent white families living around it, luring them away from private schools. That has been borne out only in a selective way. There are white majorities in kindergarten and first grade, and sizable numbers of white pupils through the early primary school years. But as the children grow older, the percentages change. In eighth grade, Mayer remains a minority-dominated school.

By 1980, more were settling in the suburbs, although relatively few demographers were paying much attention. Today, the numbers aren’t even close. In 2005, it is estimated, 4.4 million immigrants went to suburbs and 2.8 million to cities. This is far less dramatic than what has happened in metropolitan Atlanta, but it is a powerful statistic nevertheless. It essentially violates the theories of immigration and living patterns that were developed by Ernest Burgess and the Chicago school of sociologists in the early twentieth century and were rarely questioned for decades after that: Foreigners came to this country, found marginal places to live in the center of big cities, close to the industrial core, and then gradually moved farther out as their savings enabled them to purchase or rent property separated from the noise, dirt, smells, and dangers of the inner city. This theory applied to New York, where the newly arrived residents of the Lower East Side moved out to the Bronx along the subway line, and then, a generation later, to Long Island or New Jersey.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

Anthropologists and sociologists think about things like marriage and the family, and about the darker subjects of crime and racism. Economists are different, you might assume: they deal with strictly economic topics to do with industries and firms, prices and profit. In the 1950s, Gary Becker (1930–2014) broke down the divide between the ‘economic’ and the ‘social’. He was a leading economist at the University of Chicago, whose department of economics became so famous that people talk of the Chicago school of economic thought. Chicago’s philosophy was that markets and prices are the basis of how society works. Becker took this further than most. At work, shopkeepers calculate costs and benefits to earn the most profit. At home they’re busy calculating costs and benefits too, thought Becker. They make the children turn off the television and do their homework because children who do their homework end up earning more when they’re adults, and adults with money are better able to look after their elderly parents.

But Friedman’s theories were in opposition to those of Keynes and they defined new battle lines in economics. Friedman believed that the problems of the 1970s were the result of too much government, not too little. Like Keynes, he didn’t want to think up economic theories just for the sake of it – he wanted to change the world. Eventually, Friedman’s economics conquered the Keynesian way of thinking. Friedman was one of the most famous champions of capitalism and the leading economist of the Chicago school of economics, which held that the principles of markets should govern society. In his book Capitalism and Freedom he criticised many kinds of government interference in the economy: for example, controls on rents and the setting of minimum wages should go. At first, economists dismissed him and his followers as oddballs. Friedman, though, was a lively debater – quick, tireless, razor-sharp.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

Bush, ‘Securing Freedom’s Triumph’, New York Times, 11 Sept. 2002, A33. The National Security Strategy of the United State of America can be found on the website: www.whitehouse.gov/nsc/nss. 8. M. Fourcade-Gourinchas and S. Babb, ‘The Rebirth of the Liberal Creed: Paths to Neoliberalism in Four Countries’, American Journal of Sociology, 108 (2002), 542–9; J. Valdez, Pinochet’s Economists: The Chicago School in Chile (New York: Cambridge University Press, 1995); R. Luders, ‘The Success and Failure of the State-Owned Enterprise Divestitures in a Developing Country: The Case of Chile’, Journal of World Business (1993), 98–121. 9. R. Dahl and C. Lindblom, Politics, Economy and Welfare: Planning and Politico-Economic Systems Resolved into Basic Social Processes (New York: Harper, 1953). 10.

., Your Money or Your Life: The Tyranny of Global Finance (London: Pluto Press, 2003). United Nations Development Program, Human Development Report, 1996 (New York: Oxford University Press, 1996). ——Human Development Report, 1999 (New York: Oxford University Press, 1999). ——Human Development Report, 2003 (New York: Oxford University Press, 2003). Valdez, J., Pinochet’s Economists: The Chicago School in Chile (New York: Cambridge University Press, 1995). Vasquez, I., ‘The Brady Plan and Market-Based Solutions to Debt Crises’, The Cato Journal, 16/2 (online). Wade, R., Governing the Market (Princeton: Princeton University Press, 1992). ——and Veneroso, F., ‘The Asian Crisis: The High Debt Model versus the Wall Street–Treasury–IMF Complex’, New Left Review, 228 (1998), 3–23. Wallace, T., ‘NGO Dilemmas: Trojan Horses for Global Neoliberalism?’


pages: 667 words: 149,811

Economic Dignity by Gene Sperling

active measures, Affordable Care Act / Obamacare, autonomous vehicles, basic income, Bernie Sanders, Cass Sunstein, collective bargaining, corporate governance, David Brooks, desegregation, Detroit bankruptcy, Donald Trump, Double Irish / Dutch Sandwich, Elon Musk, employer provided health coverage, Erik Brynjolfsson, Ferguson, Missouri, full employment, gender pay gap, ghettoisation, gig economy, Gini coefficient, guest worker program, Gunnar Myrdal, housing crisis, income inequality, invisible hand, job automation, job satisfaction, labor-force participation, late fees, liberal world order, longitudinal study, low skilled workers, Lyft, Mark Zuckerberg, market fundamentalism, mass incarceration, mental accounting, meta analysis, meta-analysis, minimum wage unemployment, obamacare, offshore financial centre, payday loans, price discrimination, profit motive, race to the bottom, RAND corporation, randomized controlled trial, Richard Thaler, ride hailing / ride sharing, Ronald Reagan, Rosa Parks, Second Machine Age, secular stagnation, shareholder value, Silicon Valley, single-payer health, speech recognition, The Chicago School, The Future of Employment, The Wealth of Nations by Adam Smith, Toyota Production System, traffic fines, Triangle Shirtwaist Factory, Uber and Lyft, uber lyft, union organizing, universal basic income, War on Poverty, working poor, young professional, zero-sum game

STRUCTURING ANTITRUST TO PROMOTE ECONOMIC DIGNITY Antitrust is one area where it is no secret that government plays a critical role in structuring market competition. Yet for decades, there has been too little openness to considering whether antitrust law and competition policy should also incorporate values of economic dignity. The Chicago School revolutionized antitrust by establishing the premise that antitrust should be solely focused on judging whether economic concentration will lead to higher consumer prices. Since adherents held an idealized assumption that the threat of new entrants would hold down prices, only in the rarest cases—like cartels—did the Chicago School believe even massive economic concentration and monopolies would fail this test of higher consumer prices. This perspective became conventional wisdom and has dominated the courts for decades. Even under a more price-based focus, antitrust economists like Fiona Scott Morton and Carl Shapiro have called for more aggressive enforcement based on analyses of the many ways in which mergers and corporate behavior can result in higher prices, lower quality, reduced variety, and stunted innovation.

Yet the very capacity to organize as a corporation—with the special legal benefit of being able to raise funds without any investor liability—is an explicit privilege that exists solely due to laws passed by democratic legislatures. It is not even a principle that is deeply rooted in our history or even legal traditions. As scholars like Lenore Palladino and the late Lynn Stout, journalist Binyamin Appelbaum, and others have written, the idea of shareholder primacy became dominant only during the 1970s, as part of the rise of free-market economic ideologies pushed by economist Milton Friedman and others in the Chicago School.28 Today, there is a renewed willingness to ask, if corporations are creations of laws made by the people, should their end goal be something larger than shareholder maximization? There is increasingly a movement to go beyond shareholder primacy to a “stakeholder test”—one that allows corporations to consider the interests of employees, communities, suppliers, customers, and the environment on equal footing with shareholders.


The State and the Stork: The Population Debate and Policy Making in US History by Derek S. Hoff

"Robert Solow", affirmative action, Alfred Russel Wallace, back-to-the-land, British Empire, business cycle, clean water, creative destruction, David Ricardo: comparative advantage, demographic transition, desegregation, Edward Glaeser, feminist movement, full employment, garden city movement, George Gilder, Gunnar Myrdal, immigration reform, income inequality, income per capita, invisible hand, Jane Jacobs, John Maynard Keynes: technological unemployment, Joseph Schumpeter, labor-force participation, manufacturing employment, mass immigration, New Economic Geography, new economy, old age dependency ratio, Paul Samuelson, peak oil, pensions crisis, profit motive, Ralph Waldo Emerson, road to serfdom, Ronald Reagan, Scientific racism, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, trickle-down economics, urban planning, urban sprawl, wage slave, War on Poverty, white flight, zero-sum game

Building on the consumption theories of Milton Friedman, the dean of the “Chicago School”—and, in particular, the argument that expected lifetime earnings, not immediate income, guide an individual’s consumption habits—Easterlin posited a cyclical theory of American fertility based upon “relative expectations” or “potential income.” Members of a large cohort face stiffened labor market competition, and as a result they have fewer babies than their parents did.81 Easterlin’s emphasis on “intergenerational relative income” differed from Becker’s emphasis on household consumption, but the thrust of both was that population growth rates naturally adjust to the economic and social environment, a conclusion that cuts against overpopulation concerns.82 True to the broader philosophy of the “Chicago School,” any externalities associated with children (e.g., pollution effects) were deemed marginal.

., 1956–1966.” 76. For example, Simon Kuznets believed that the ability of societies to invest in human capital upset traditional assumptions about the effects of population growth on capital formation. See his “Population and Economic Growth,” Proceedings of American Philosophical Society 111 (June 1967): 178–84. 77. The original human capital theorists were conservative labor economists associated with the “Chicago School,” but their findings ironically provided theoretical support for the Great Society’s social investment. See Alice O’Connor, Poverty Knowledge: Social Science, Social Policy, and the Poor in Twentieth-Century U.S. History (Princeton: Princeton University Press, 2001), 140–43. Less well known is that human capital theory was closely connected to population debates. The link stretched back to prewar demography, when the eugenic emphasis on population “quality” spurred interest in measuring the economic value of investment in population “improvement.”


pages: 87 words: 25,823

The Politics of Bitcoin: Software as Right-Wing Extremism by David Golumbia

3D printing, A Declaration of the Independence of Cyberspace, Affordable Care Act / Obamacare, bitcoin, blockchain, Burning Man, crony capitalism, cryptocurrency, currency peg, distributed ledger, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, Extropian, fiat currency, Fractional reserve banking, George Gilder, jimmy wales, litecoin, Marc Andreessen, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, new economy, obamacare, Peter Thiel, Philip Mirowski, risk tolerance, Ronald Reagan, Satoshi Nakamoto, seigniorage, Silicon Valley, Singularitarianism, smart contracts, Stewart Brand, technoutopianism, The Chicago School, Travis Kalanick, WikiLeaks

The idea that inflation is a “destruction of value” and that the U.S. dollar has lost most or all of its purchasing power over the course of a hundred years has long been a staple of conspiracy theories, in no small part used by demagogues like Alex Jones to drive the unsuspecting toward purchases of gold and other precious metals (on inflation conspiracy theories in general see Aziz 2014 and Krugman 2011; for Ron Paul’s use of inflation conspiracy theories see Foxman 2012). The extremist characterization of inflation may have found its way into some parts of popular discourse via its promulgation in JBS and other right-wing propaganda, but it was a theory developed and cultivated by the architects of neoliberal doctrine associated with the Chicago School of economics and the Mont Pelerin Society. Chief among these was MPS founding member and early 1970s president and University of Chicago economics professor Milton Friedman. Since at least the 1950s Friedman preached a very specific point of view about inflation, summarized in his famous (Friedman 1963) dictum that “inflation is always and everywhere a monetary phenomenon.” While this matter may have seemed an arcane and technical matter for economists, it ended up underwriting a new form of right-wing practice, where instead of demanding that governments take a “hands-off” policy toward markets as had their predecessors, neoliberals wanted to take control of state power for their own ends: “A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it” (Mirowski 2014, 56).


pages: 356 words: 91,157

The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class?and What We Can Do About It by Richard Florida

affirmative action, Airbnb, basic income, Bernie Sanders, blue-collar work, business climate, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbine, congestion charging, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, Donald Trump, East Village, edge city, Edward Glaeser, failed state, Ferguson, Missouri, Gini coefficient, Google bus, high net worth, income inequality, income per capita, industrial cluster, informal economy, Jane Jacobs, jitney, Kitchen Debate, knowledge economy, knowledge worker, land value tax, low skilled workers, Lyft, megacity, Menlo Park, mortgage tax deduction, Nate Silver, New Economic Geography, new economy, New Urbanism, occupational segregation, Paul Graham, plutocrats, Plutocrats, RAND corporation, rent control, rent-seeking, Richard Florida, rising living standards, Ronald Reagan, secular stagnation, self-driving car, Silicon Valley, sovereign wealth fund, superstar cities, the built environment, The Chicago School, The Death and Life of Great American Cities, the High Line, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, upwardly mobile, urban decay, urban planning, urban renewal, urban sprawl, white flight, young professional

Terry Clark, Richard Lloyd, Kenneth Wong, and Pushpam Jain, “Amenities Drive Urban Growth,” Journal of Urban Affairs 24, no. 5 (2002): 493–515; Richard Florida, “The Economic Geography of Talent,” Annals of the Association of American Geographers 92 (2002): 743–755; Edward Glaeser, Jed Kolko, and Albert Saiz, “Consumer City,” Journal of Economic Geography 1, no 1 (2001): 27. 5. See Robert Owens, “Mapping the City: Innovation and Continuity in the Chicago School of Sociology, 1920–1934,” American Sociologist 43, no. 3 (September 2012): 264–293; Martin Bulmer, The Chicago School of Sociology: Institutionalization, Diversity, and the Rise of Sociological Research (Chicago: University of Chicago Press, 1986). 6. Robert Ezra Park, Ernest W. Burgess, and Roderick D. McKenzie, The City (Chicago: University of Chicago Press, 1925). Burgess also published a seminal study of residential segregation; see Ernest W.


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Capitalism: A Ghost Story by Arundhati Roy

activist fund / activist shareholder / activist investor, Bretton Woods, corporate governance, feminist movement, Frank Gehry, ghettoisation, Howard Zinn, informal economy, land reform, Mahatma Gandhi, means of production, megacity, microcredit, Nelson Mandela, neoliberal agenda, Occupy movement, RAND corporation, reserve currency, special economic zone, spectrum auction, stem cell, The Chicago School, Washington Consensus, WikiLeaks

Hindu, February 25, 2012 http://www.thehindu.com/news/national/small -loans-add-up-to-lethal-debts/article2932670.ece. 44. David Ransom, “Ford Country: Building an Elite in Indonesia,” in The Trojan Horse: A Radical Look at Foreign Aid, ed. Steve Weissman with members of the Pacific Studies Center and the North American Congress on Latin America (Palo Alto, CA: Ramparts, 1975), 93–116. 45. Juan Gabriel Valdés, Pinochet’s Economists: The Chicago School of Economics in Chile (New York: Cambridge University Press, 1995). 46. Rajander Singh Negi, “Magsaysay Award: Asian Nobel, Not So Noble,” Economic and Political Weekly 43, no. 34 (2008): 14–16. 47. Narayan Lakshman,“World Bank Needs Anti-graft Policies,” Hindu, September 1, 2011, http://www.thehindu.com/todays-paper/tp -international/world-bank-needs-antigraft-policies/article2416346.ece.


pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

The timing was ironic: American courts were buying into notions that markets were “naturally” competitive and placing a high burden of proof on anyone claiming otherwise just as the economics discipline was exploring theories that explain why markets often were not competitive, even when there were seemingly many firms. For instance, a new and powerful branch of economics called game theory explained how collusive behavior could be maintained tacitly over extended periods of time. Meanwhile, new theories of imperfect and asymmetric information showed how information imperfections impaired competition, and new evidence substantiated the relevance and importance of these theories. The influence of the Chicago school should not be underestimated. Even when there are blatant infractions—like predatory pricing, where a firm lowers its price to force out a competitor and then uses its monopoly power to raise prices—they’ve been hard to prosecute.34 Chicago school economics argues that markets are presumptively competitive and efficient. If entry were easy, the dominant firm would gain nothing from driving out a rival, because the firm that is forced out would be quickly replaced by another firm.

The banks set a critical rate, called the London Interbank Offered Rate, or Libor. Mortgages and many financial products are linked to Libor. It appears that the banks worked to rig the rate, enabling them to make still more money from others who were unaware of these shenanigans.) Of course, even when laws that prohibit monopolistic practices are on the books, these have to be enforced. Particularly given the narrative created by the Chicago school of economics, there is a tendency not to interfere with the “free” workings of the market, even when the outcome is anticompetitive. And there are good political reasons not to take too strong a position: after all, it’s antibusiness—and not good for campaign contributions—to be too tough on, say, Microsoft.43 Politics: getting to set the rules and pick the referee It’s one thing to win in a “fair” game.

,” Economics Letters 20, no. 1 (1986): 67–70; J. E. Stiglitz, “Technological Change, Sunk Costs, and Competition,” Brookings Papers on Economic Activity 3 (1987), pp. 883–947; and P. Dasgupta and J. E. Stiglitz, “Potential Competition, Actual Competition, and Economic Welfare,” European Economic Review 32, nos. 2–3 (March 1988): 569–77. 33. For discussion and examples of conservative foundations’ contribution to the Chicago school law and economics programs, see Alliance for Justice, Justice for Sale: Shortchanging the Public Interest for Private Gain (Washington, DC: Alliance for Justice, 1993). 34. The Department of Justice brought a case against American Airlines in the early years of this century. I thought the evidence that American Airlines had engaged in predatory behavior was especially compelling, but the judge didn’t need to look at the evidence: the Supreme Court had ruled that there was just too strong a presumption against the existence of predatory pricing to make prosecution possible. 35.


pages: 98 words: 29,610

From Bauhaus to Our House by Tom Wolfe

Bonfire of the Vanities, Buckminster Fuller, Electric Kool-Aid Acid Test, Peter Eisenman, plutocrats, Plutocrats, The Chicago School, urban renewal

All architecture became nonbourgeois architecture, although the concept itself was left discreetly unexpressed, as it were. The old Beaux-Arts traditions became heresy, and so did the legacy of Frank Lloyd Wright, which had only barely made its way into the architecture schools in the first place. Within three years, every so-called major American contribution to contemporary architecture—whether by Wright, H. H. Richardson, creator of the heavily rusticated American Romanesque, or Louis Sullivan, leader of the “Chicago School” of skyscraper architects—had dropped down into the footnotes, into the ibid. thickets. Wright himself was furious and, for one of the few times in his life, bewildered. It was hard to say what got under his skin more: the fact that his work had been upstaged by the Europeans or the fact that he was now treated as a species of walking dead man. He was not deprived of honor and respect, but when he got it, it often sounded like a memorial service.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

3D printing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, credit crunch, crony capitalism, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, gig economy, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, income inequality, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, James Watt: steam engine, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, mini-job, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, plutocrats, Plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

This is what platform corporations want, and what neo-liberals have always wanted, because they depict all collective bodies as distorting the market and preventing market clearing.30 The platforms are reducing the rental income gained by those inside occupational communities and transferring that to themselves, further reducing the returns to labour and work. One of the least analysed aspects of the neo-liberal agenda has been the re-regulation of occupations, including all the great professions. Milton Friedman, an architect of the Chicago school of economics, wrote his first book (with Simon Kuznets) in 1945 on the medical professions, criticising their rent seeking through restricting the supply of doctors, imposing high standards, controlling fees and so on. When the neo-liberals achieved domination of the economics profession and economic policymaking in the 1980s, they launched an onslaught on occupational self-regulation. This was not deregulation, but state re-regulation.

Right now the central bank presidents of Chile, Argentina and Israel were my students, and the immediate former central bank presidents in Argentina, Chile and Costa Rica were also my students.5 Many of his former students were in prominent positions in the lead-up to the financial crash in 2008, and by the time he spoke to the MPS conference in Lima in 2015 he could doubtless have embellished his boast. He and Friedman groomed Chile’s ‘Chicago boys’ to help Pinochet put their neo-liberal model into effect after the coup. With Hayek and von Mises, they forged what became the hegemonic doctrine, known colloquially as the Chicago school of law and economics. No fewer than seventeen winners of the Nobel Prize for Economics between 1980 and 2008 were from the University of Chicago or were educated there. The academic discipline of ‘economics’ became a creature of an ideological paradigm.6 ‘Business schools’ partially displaced economics departments and critics of neo-liberalism found themselves disenfranchised. The pluralism that had characterised economics faculties was jettisoned in most universities around the world.


pages: 338 words: 106,936

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Asian financial crisis, bank run, beat the dealer, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, collateralized debt obligation, collective bargaining, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, John Nash: game theory, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, martingale, Myron Scholes, new economy, Paul Lévy, Paul Samuelson, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

For instance, one consequence of the hypothesis is that there can’t be any speculative bubbles, because a bubble can occur only if the market price for something becomes unmoored from the thing’s actual value. Anyone who remembers the dot-com boom and bust in the late nineties/early 2000s, or anyone who has tried to sell a house since about 2006, knows that prices don’t behave as rationally as the Chicago School would have us believe. Indeed, most of the day-to-day traders I’ve spoken with find the idea laughable. But even if markets aren’t always efficient, as they surely aren’t, and even if sometimes prices get quite far out of whack with the values of the goods being traded, as they surely do, the efficient market hypothesis offers a foothold for anyone trying to figure out how markets work.

But in the 1960s — indeed, for much of the practice’s history — it was viewed as dangerous at best, and perhaps even depraved or unpatriotic. The short seller was perceived as a blatant speculator, gambling on market moves rather than investing capital to spur growth. Worse, he had the nerve to take a financial interest in bad news. This struck many investors as déclassé. Views on short selling changed in the 1970s and 1980s, in part because of Thorp’s and others’ work, and in part because of the rise of the Chicago School of economics. As those economists argued at the time, short selling may seem crude, but it serves a crucial social good: it helps keep markets efficient. If the only people who can sell a stock are the ones who already own it, people who have information that could be bad for the company often don’t have any way of affecting market prices. This would mean that information could be available that isn’t reflected in the stock price, because the people who have access to the information aren’t able to participate in the market.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

These so-called ‘supply side’ reforms would improve productivity. By the early 1980s, with Margaret Thatcher in power in Britain and Ronald Reagan in America, Friedman’s influence was at its peak. The government role in the economy was to control inflation and to ensure the rule of law and property rights. Otherwise, markets should be given free rein to allocate resources, which they would inevitably do in a more efficient way than bureaucrats. The Chicago school also argued that lower taxes would result in a ‘supply-side boost’ to economic activity, as businessmen and workers were given incentives to work harder. The same critics argued that the government had interfered too much in the private sector by nationalizing industries and raising taxes. Economic growth would improve if regulations were reduced and taxes cut. This was the birth of the neo-liberal school of economics.

It was not for Alan Greenspan to second guess the decisions of smart fund managers – the Howard Roarks of their day – who had spent their lives analysing the data. This analysis reflected the general reaction against the Keynesian consensus of the post-war period, which seemed to end in significant parts of industry being under government control. An academic fight back was led by Milton Friedman of the Chicago school of economics, who argued that governments were poor at allocating capital. The free market view certainly had some justification; government projects are often marked by bloated spending and ‘white elephants’ such as Concorde. Bureaucrats are unlikely to devise such popular products as the iPod or the Nintendo Wii. Markets are inherently better at innovating since they can respond to pricing and demand signals sent every day by individual consumers.


pages: 437 words: 105,934

#Republic: Divided Democracy in the Age of Social Media by Cass R. Sunstein

A Declaration of the Independence of Cyberspace, affirmative action, Affordable Care Act / Obamacare, Bernie Sanders, Cass Sunstein, choice architecture, Donald Trump, drone strike, Erik Brynjolfsson, Filter Bubble, friendly fire, global village, illegal immigration, immigration reform, income inequality, Jane Jacobs, loss aversion, Mark Zuckerberg, obamacare, prediction markets, road to serfdom, Ronald Reagan, Silicon Valley, Skype, Snapchat, stem cell, The Chicago School, The Death and Life of Great American Cities, The Wisdom of Crowds, WikiLeaks

Many of those who know most about the underlying technology and what is becoming possible often display a kind of visceral, unreflective libertarianism—a belief that all that matters is that people are allowed to see what they want and choose what they like. The commitments to free markets and perfecting them are no less intense than what can be found in the ideas of the Chicago school of economics, most famously captured in the work of Milton Friedman. As a longtime professor at the University of Chicago, where I taught from 1981 until 2007, I confess a great deal of fondness for the Chicago school; in my view, it is mostly right, and certainly more right than wrong. For consumer goods—such as sneakers, cars, soaps, and candy—it provides the right foundation for analysis. But when we are speaking of politics and the democratic domain, it misses a great deal. The risk is that the proliferation of niches will harm aspects of our shared culture and also promote fragmentation, especially along political lines.


pages: 401 words: 109,892

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

airline deregulation, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, barriers to entry, bitcoin, blockchain, business cycle, business process, buy and hold, Carmen Reinhart, carried interest, central bank independence, commoditize, crack epidemic, cross-subsidies, disruptive innovation, Donald Trump, Erik Brynjolfsson, eurozone crisis, financial deregulation, financial innovation, financial intermediation, gig economy, income inequality, income per capita, index fund, intangible asset, inventory management, Jean Tirole, Jeff Bezos, Kenneth Rogoff, labor-force participation, law of one price, liquidity trap, low cost airline, manufacturing employment, Mark Zuckerberg, market bubble, minimum wage unemployment, money market fund, moral hazard, natural language processing, Network effects, new economy, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, price discrimination, profit maximization, purchasing power parity, QWERTY keyboard, rent-seeking, ride hailing / ride sharing, risk-adjusted returns, Robert Bork, Robert Gordon, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, Snapchat, spinning jenny, statistical model, Steve Jobs, supply-chain management, Telecommunications Act of 1996, The Chicago School, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, Travis Kalanick, Vilfredo Pareto, zero-sum game

It viewed the market as a structure influencing the conduct of businesses and the performance of the industry. This set of ideas and principles came to be known as the Harvard School of antitrust. The Chicago School brought a counterrevolution in the 1970s which tried to put economic efficiency at the center of antitrust policy. Robert Bork’s highly influential book, The Antitrust Paradox, marked a shift in policy in 1978. As IO economists John Kwoka and Lawrence White (2014) explain, “the skepticism and even some hostility toward big business that characterized the initial period of antitrust have been replaced by current policy that evaluates market structure and business practices differently.” For instance, an idea from the Chicago School is that high concentration does not necessarily imply market power as long as the threat of entry is real, that is, as long as the market is contestable.


pages: 654 words: 191,864

Thinking, Fast and Slow by Daniel Kahneman

Albert Einstein, Atul Gawande, availability heuristic, Bayesian statistics, Black Swan, Cass Sunstein, Checklist Manifesto, choice architecture, cognitive bias, complexity theory, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, delayed gratification, demand response, endowment effect, experimental economics, experimental subject, Exxon Valdez, feminist movement, framing effect, hedonic treadmill, hindsight bias, index card, information asymmetry, job satisfaction, John von Neumann, Kenneth Arrow, libertarian paternalism, loss aversion, medical residency, mental accounting, meta analysis, meta-analysis, nudge unit, pattern recognition, Paul Samuelson, pre–internet, price anchoring, quantitative trading / quantitative finance, random walk, Richard Thaler, risk tolerance, Robert Metcalfe, Ronald Reagan, Shai Danziger, Supply of New York City Cabdrivers, The Chicago School, The Wisdom of Crowds, Thomas Bayes, transaction costs, union organizing, Walter Mischel, Yom Kippur War

Much is therefore at stake in the debate between the Chicago school and the behavioral economists, who reject the extreme form of the rational-agent model. Freedom is not a contested value; all the participants in the debate are in favor of it. But life is more complex for behavioral economists than for tru S th17;e believers in human rationality. No behavioral economist favors a state that will force its citizens to eat a balanced diet and to watch only television programs that are good for the soul. For behavioral economists, however, freedom has a cost, which is borne by individuals who make bad choices, and by a society that feels obligated to help them. The decision of whether or not to protect individuals against their mistakes therefore presents a dilemma for behavioral economists. The economists of the Chicago school do not face that problem, because rational agents do not make mistakes.

Libertarian policies are further bolstered by admiration for the efficiency of markets in allocating goods to the people who are willing to pay the most for them. A famous example of the Chicago approach is titled A Theory of Rational Addiction; it explains how a rational agent with a strong preference for intense and immediate gratification may make the rational decision to accept future addiction as a consequence. I once heard Gary Becker, one of the authors of that article, who is also a Nobel laureate of the Chicago school, argue in a lighter vein, but not entirely as a joke, that we should consider the possibility of explaining the so-called obesity epidemic by people’s belief that a cure for diabetes will soon become available. He was making a valuable point: when we observe people acting in ways that seem odd, we should first examine the possibility that they have a good reason to do what they do. Psychological interpretations should only be invoked when the reasons become implausible—which Becker’s explanation of obesity probably is.


pages: 449 words: 127,440

Moscow, December 25th, 1991 by Conor O'Clery

Anton Chekhov, Berlin Wall, central bank independence, Dissolution of the Soviet Union, Donald Trump, Doomsday Clock, Fall of the Berlin Wall, Francis Fukuyama: the end of history, haute couture, land reform, Mikhail Gorbachev, Ronald Reagan, Sinatra Doctrine, The Chicago School

As a former Russian presidential chief of staff, Alexander Leontiyev, put it not long afterwards, “Americans got so drunk at the USSR’s funeral that they’re still hung over.” Indeed what is remarkable is the number of Americans who gather around the deathbed for the obsequies for communist power. Never before or since are Russian and American interests so intertwined. The distrust and enmity of the long Cold War dissolves into a remarkable dalliance between the competing nuclear powers. Americans from the International Monetary Fund and from the Chicago School of Economics are to be found in Moscow collaborating with Russian policymakers on a new direction for the Russian economy. Their guiding hands are at the elbow of Yeltsin’s ministers as they embark on a mission unprecedented in economic history: the dismantling of the communist model and its substitution with the raw capitalism of neoliberal economics. During a visit to Russia just days before Gorbachev’s resignation, U.S. secretary of state James Baker marvels at how, in all his meetings, one theme is uniform: “the intense desire to satisfy the United States.”3 With each of the new republics trying to establish positive relations with America, he reckons that “our ability to affect their behavior” will never be greater than at this time.

They also sought advice from Harvard economics professor Jeffrey Sachs, who assisted the Polish government with its shock therapy.4 Sach’s attitude, according to Chernyaev, was “If you don’t become like us, you’ll get no dollars.” Gorbachev vetoed the plan, and no dollars were forthcoming. Having persuaded the Russian parliament to give him special powers, Yeltsin is ready to make the leap to capitalism. He has given the task to a small and radical group of young economists, led by Gaidar, a devotee of the Chicago school of monetarist economics. Short, chubby, intellectually gifted, and nicknamed Guboshlyop because of the way his lips flap when he talks, the thirty-five-year-old Gaidar is to be found on the evening of December 25, 1991, in the long, whitewashed Hall of Meetings, where a drugged and distressed Yeltsin was brought from his hospital bed four years ago to be shamed by party leader Mikhail Gorbachev for daring to challenge his leadership and privileges.


Multicultural Cities: Toronto, New York, and Los Angeles by Mohammed Abdul Qadeer

affirmative action, business cycle, call centre, David Brooks, deindustrialization, desegregation, edge city, en.wikipedia.org, Frank Gehry, game design, ghettoisation, global village, immigration reform, industrial cluster, Jane Jacobs, knowledge economy, market bubble, McMansion, new economy, New Urbanism, place-making, Richard Florida, risk tolerance, Silicon Valley, Skype, telemarketer, the built environment, The Chicago School, The Death and Life of Great American Cities, the scientific method, urban planning, urban renewal, working-age population, young professional

The Cultures of Cities and Theoretical Discourse Ethno-racial diversity spawns the multiplicity of cultures and lays the basis of demands for the recognition of the identities of their bearers. This brings up the question of the cultures of a city and what are their bases. Theoretical interest in the culture or cultures of cities has a long history. At the dawn of the modern period, theorists such as Max Weber, Emile Durkheim, and Georg Simmel were occupied with exploring the cultural elements of city life. The Chicago School of urban sociology in the early twentieth century identified urbanism as a distinct way of life and urban social organization as the embodiment of its culture and social relations. Urban theory continues to command interest in the culture of cities right up to the present time, as reflected in the writings of David Harvey, Manuel Castells, Anthony Giddens, and the purveyors 12 Multicultural Cities of the theory of postmodern urbanism, sometimes called the Los Angeles school of urbanism, namely, Michael Dear, Edward Soja, Allen Scott, and others.

To understand how ethno-racial differences affect the internal structure and inject pluralism into it, I will begin with a brief review of those theories and models. The most common image of a city is that of a circular built-up area, divided into residential zones of decreasing densities from the centre to the periphery. At the centre of this built-up area is a high-density district of commercial-business activities. This image owes its origin to the Chicago school’s Ernest Burgess, whose concentric zone hypothesis (1923) conceived the city as a product of ecological processes.2 Other classical models include (1) Homer Hoyt’s sector theory (1939), envisioning the city as made up of pie-shaped sectors differentiated by high, medium, and low rental housing, which corresponded to the residences of the associated social classes; and (2) Chauncy Harris and Edward Ullman’s multiple-nuclei hypothesis (1945), which postulates the city as structured around multiple centres that serve as the anchors of its development and expansion.3 From these models the analytical parameters of urban structure can be deduced, that is, functions (residential, commercial, industrial), socioeconomic characteristics of residents, density of development, locations of activities, and interrelations.


pages: 412 words: 128,042

Extreme Economies: Survival, Failure, Future – Lessons From the World’s Limits by Richard Davies

agricultural Revolution, air freight, Anton Chekhov, artificial general intelligence, autonomous vehicles, barriers to entry, big-box store, cashless society, clean water, complexity theory, deindustrialization, eurozone crisis, failed state, financial innovation, illegal immigration, income inequality, informal economy, James Hargreaves, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, large denomination, Livingstone, I presume, Malacca Straits, mandatory minimum, manufacturing employment, means of production, megacity, meta analysis, meta-analysis, new economy, off grid, oil shale / tar sands, pension reform, profit motive, randomized controlled trial, school choice, school vouchers, Scramble for Africa, side project, Silicon Valley, Simon Kuznets, Skype, spinning jenny, The Chicago School, the payments system, trade route, Travis Kalanick, uranium enrichment, urban planning, wealth creators, white picket fence, working-age population, Y Combinator, young professional

Klinenberg, E. (2018), Palaces for the People: How Social Infrastructure Can Help Fight Inequality, Polarization, and the Decline of Civic Life (London: Bodley Head). Larrain, F., and Meller, P. (1990), ‘The Socialist-Populist Chilean Experience, 1970–1973’, in Dornbusch, R., and Edwards, S. (eds.), The Macroeconomics of Populism in Latin America (Chicago: University of Chicago Press). Mander, B. (2017), ‘Leftwing Bloc Upends Chile’s Traditional Balance of Power’, Financial Times, 24 November. Miller, H. L. (1962), ‘On the “Chicago School of Economics”’, Journal of Political Economy, 70 (1), 64–9. Montero, R., and Vargas, M. (2012), Economic Residential Segregation Effects on Educational Achievements: The Case of Chile. OECD (2010), OECD Economic Surveys: Chile (Paris: OECD). ———— (2011), Divided We Stand – Why Inequality Keeps Rising (Paris: OECD). ———— (2018), Divided Cities: Understanding Intra-urban Inequalities (Paris: OECD).

C. (1947), Economic Policy for a Free Society (Chicago: University of Chicago). Solimano, A. (2012), Chile and the Neoliberal Trap – The Post-Pinochet Era (Cambridge: Cambridge University Press). Stokes, J. M. (1956), ‘The International Cooperation Administration’, World Affairs, 119 (2), 35–37. United Nations (2018), World Urbanisation Prospects – Key Facts (New York: United Nations). Valdés, J. G. (1995), Pinochet’s Economists: The Chicago School of Economics in Chile (Cambridge: Cambridge University Press). Vallejo, C. (2016), ‘On Public Education in Chile’, OECD Yearbook 2016 (Paris: OECD). Weissbrodt, D., and Fraser, P. (1992), ‘Report of the Chilean National Commission on Truth and Reconciliation’, Human Rights Quarterly, 14 (4), 601–22. Winn, P. (ed.) (2004), Victims of the Chilean Miracle – Workers and Neoliberalism in the Pinochet Era, 1973–2002 (Durham, NC: Duke University Press).


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The Extreme Centre: A Warning by Tariq Ali

Affordable Care Act / Obamacare, Berlin Wall, bonus culture, BRICs, British Empire, centre right, deindustrialization, Edward Snowden, Fall of the Berlin Wall, financial deregulation, first-past-the-post, full employment, labour market flexibility, land reform, light touch regulation, means of production, Mikhail Gorbachev, Monroe Doctrine, mortgage debt, negative equity, Neil Kinnock, North Sea oil, obamacare, offshore financial centre, popular capitalism, reserve currency, Ronald Reagan, South China Sea, The Chicago School, The Wealth of Nations by Adam Smith, trade route, trickle-down economics, Washington Consensus, Westphalian system, Wolfgang Streeck

They had always known that, sooner or later, reviving these economies would produce countries that would rival the US, at least on the economic and trade fronts. They had been prepared to take that risk because, while the Soviet Union persisted, it seemed as if there was no other effective way to shore up the frayed postwar capitalist system. But when the Soviet Union self-destructed and was dismantled, new problems arose, partially political, but mostly social and economic. With the victory of Hayek and the Chicago School came the birth of what became known as neoliberalism. Accordingly, the European Union began to determine the social and economic policies of its member states. This meant ending state control of industries, and slowly but inexorably dismantling the social welfare state by bringing the market into what had until now been the most hallowed domains of social provision. Thus when the 2008 crisis exploded, the result was pure panic in EU headquarters.


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Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

"Robert Solow", 3Com Palm IPO, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, Paul Samuelson, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, Supply of New York City Cabdrivers, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

In other words, the Coase theorem worked in theory, when trading for tokens redeemable for cash, but it did not work in practice, when trading for real-world objects like coffee mugs. Questioning the Coase theorem at a law and economics workshop! That was high treason. One of the unfortunate aspects of the University of Chicago at that time, one that is thankfully no longer the case, was that there was an undue tolerance for scholars who would spout the Chicago School traditional lines, loudly and frequently. One example was the economist John Lott, who had strung together a series of visiting appointments allowing him to be at the university for several years. Lott is most famous for writing a book entitled More Guns, Less Crime. As the title suggests, the thesis of the book is that if we just made sure every American was armed at all times, no one would dare commit a crime, a claim that other researchers have strongly disputed.§ Lott was a frequent attendee and active participant at workshops.

Law professor Ward Farnsworth documented this reluctance by interviewing attorneys from over twenty civil cases in which injunctive relief was sought and either granted or denied after full litigation before a judge. In not a single case did the parties even attempt to negotiate after the court had issued its order. In addition to the Coase theorem, the other part of the paper that got people’s blood boiling was something we left for the very end of it—the topic of paternalism. The core principle underlying the Chicago School’s libertarian beliefs is consumer sovereignty: the notion that people make good choices, and certainly better choices than anyone else could make for them. By raising the specters of bounded rationality and bounded self-control, we were undercutting this principle. If people make mistakes, then it becomes conceivable, at least in principle, that someone could help them make a better choice.


pages: 515 words: 143,055

The Attention Merchants: The Epic Scramble to Get Inside Our Heads by Tim Wu

1960s counterculture, Affordable Care Act / Obamacare, AltaVista, Andrew Keen, anti-communist, Apple II, Apple's 1984 Super Bowl advert, barriers to entry, Bob Geldof, borderless world, Brownian motion, Burning Man, Cass Sunstein, citizen journalism, colonial rule, East Village, future of journalism, George Gilder, Golden Gate Park, Googley, Gordon Gekko, housing crisis, informal economy, Internet Archive, Jaron Lanier, Jeff Bezos, jimmy wales, Live Aid, Mark Zuckerberg, Marshall McLuhan, McMansion, Nate Silver, Network effects, Nicholas Carr, placebo effect, post scarcity, race to the bottom, road to serfdom, Saturday Night Live, science of happiness, self-driving car, side project, Silicon Valley, slashdot, Snapchat, Steve Jobs, Steve Wozniak, Steven Levy, Ted Nelson, telemarketer, the built environment, The Chicago School, the scientific method, The Structural Transformation of the Public Sphere, Tim Cook: Apple, Torches of Freedom, Upton Sinclair, upwardly mobile, white flight, zero-sum game

What Wallace Stegner wrote of his character Rodman, a radical-turned-sociologist, he might have written of Jonathan Robbin: he was “interested in change, all right, but only as a process; and he is interested in values, but only as data.”1 Robbin himself put it this way: “I am interested in the problems of measurement and interpretation…understanding how things work and using that information and knowledge for the benefit of humanity.”2 In fact, over his career he would join the not-so-rare species of academic who begins by trying to save the world and ends up trying to cash in. “Equally at home quoting Baudelaire and R. Crumb,” as one observer remarked, Robbin would become a professor at New York University in the 1950s.3 He would spend the following decade building first-generation computer models to predict things like where urban riots were likely to occur, the same way you might predict the weather.4 Robbin’s models were based on observations of the Chicago School of Sociology, which aimed to understand American communities like ecosystems. Neighborhoods, the sociologists thought, could be seen as super-organisms with lives of their own apart from those of the individuals living in them; they would mature and grow or shrink and disappear over time, like a rainforest.5 The aim of better understanding communities dovetailed with “the politics of recognition,” a major strain of 1960s and 1970s countercultural thought.

The rough thesis was that the diversity of the American public needed to be understood and recognized, particularly in the case of groups long left out of the dominant discourse. Along with related liberation movements, the 1970s saw a surge in popular interest in marginalized groups, like women, or subcultures, like African Americans, Latinos, gays, Native Americans, and so on. It all fit the spirit of individualism.6 Robbin’s models brought computational rigor to the Chicago School’s methods, which were empirical and qualitative. At the height of a progressive movement to acknowledge and empower neglected groups—African Americans most prominently—Robbin worked on what he called “cluster analysis,” by which one could understand more precisely what kind of people lived in any neighborhood based on the “principle that residents living near each other are likely to have similar demographic, socio-economic and lifestyle characteristics.”7 His public-spirited but academic goal to gain a better understanding of what the nation really looked like.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, light touch regulation, London Interbank Offered Rate, market fundamentalism, Martin Wolf, mobile money, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

And as worrying, sections of the so-called Left are channelling anger at bankers into neoclassical economic policies for resolving the crisis. Some of these proposals for ‘reform’ of the banking system are also discussed in this book. They take the form of ‘fractional reserve banking’, the nationalisation of the money supply and the pursuit of ‘balanced budgets’ for governments. These are policies which owe their origins to the Chicago School and to Friedrich Hayek and Milton Friedman. They would have devastating impacts on the working population and those dependent on government welfare. So this book challenges the flawed, if well-meaning, approaches of civil society organisations that are steering many on the Left into, to my mind, an intellectual dead-end. Challenging the economics profession Part of the reason there is so much public confusion about money, banking and debt is that the economics profession stands aloof from the financial system, declines (on the whole) to understand or teach these subjects, and arrogantly blames others (including politicians and consumers) for financial crises.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carmen Reinhart, central bank independence, commoditize, conceptual framework, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, Plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

They go further, however, and state that “the collapse from 1929 to 1933 was neither foreseeable nor inevitable.”50 All of these arguments may seem quite reasonable from the perspective of an economist, especially revered economic researchers such as Milton Friedman and Anna Schwartz, but when their conclusions are viewed from the point of view of a credit officer or trader, a different analysis emerges. Economists from the Chicago School such as Friedman have long believed that the market price of a security and the intrinsic value of a security in a long-term sense are equivalent, but this view seems to ignore the transient factors such as the availability of credit, which can greatly affect demand for stocks. The market action in the later part of the 1920s had all of the attributes of a nineteenth century speculative market movement where the only real driver was the irrational exuberance of the participants and particularly their belief that prices would move higher.

Once you know value, everything happens. Cash moves for value. More price does not mean more value. If you do not recognize the difference, the fundamental difference between price and value, then you are doomed. Now it didn’t really matter in corporate finance because the two were supposed to remain equal forever. Who has been telling us that? These people do not live in New York. They live in Chicago. The Chicago School of Economics has been telling us for a century that price and value are identical, i.e., they are the same number. What this means is that there is no such thing as a good deal, there is not such a thing as a bad deal, there are only fair deals.51 As already noted, many “investors” during this period had already dispensed with the old fashioned idea of using fundamental factors such as profits or earnings to assess the relative value of a security.


pages: 489 words: 148,885

Accelerando by Stross, Charles

business cycle, call centre, carbon-based life, cellular automata, cognitive dissonance, commoditize, Conway's Game of Life, dark matter, dumpster diving, Extropian, finite state, Flynn Effect, glass ceiling, gravity well, John von Neumann, Kickstarter, knapsack problem, Kuiper Belt, Magellanic Cloud, mandelbrot fractal, market bubble, means of production, MITM: man-in-the-middle, orbital mechanics / astrodynamics, packet switching, performance metric, phenotype, planetary scale, Pluto: dwarf planet, reversible computing, Richard Stallman, SETI@home, Silicon Valley, Singularitarianism, slashdot, South China Sea, stem cell, technological singularity, telepresence, The Chicago School, theory of mind, Turing complete, Turing machine, Turing test, upwardly mobile, Vernor Vinge, Von Neumann architecture, web of trust, Y2K, zero-sum game

Oh, and he's promised to invent three new paradigm shifts before breakfast every day, starting with a way to bring about the creation of Really Existing Communism by building a state central planning apparatus that interfaces perfectly with external market systems and somehow manages to algorithmically outperform the Monte Carlo free-for-all of market economics, solving the calculation problem. Just because he can, because hacking economics is fun, and he wants to hear the screams from the Chicago School. Try as he may, Manfred can't see anything in the press release that is at all unusual. It's just the sort of thing he does, and getting it on the net was why he was looking for a CIA stringer in the first place. He tries to explain this to her in the bath as he soaps her back. "I don't understand what they're on about," he complains. "There's nothing that tipped them off – except that I was in Paris, and you filed the news.

A pause for a sip of coffee, and to think, one honest statement deserves another: "And to pay off a divorce settlement." "Ye-es? Well, let me show you my library, my friend," he says, standing up. "This way." Gianni ambles out of the white living room with its carnivorous leather sofas, and up a cast-iron spiral staircase that nails some kind of upper level to the underside of the roof. "Human beings aren't rational," he calls over his shoulder. "That was the big mistake of the Chicago School economists, neoliberals to a man, and of my predecessors, too. If human behavior was logical, there would be no gambling, hmm? The house always wins, after all." The staircase debouches into another airy whitewashed room, where one wall is occupied by a wooden bench supporting a number of ancient, promiscuously cabled servers and a very new, eye-wateringly expensive solid volume renderer.


pages: 554 words: 158,687

Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas

"Robert Solow", Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, computer age, conceptual framework, corporate governance, credit crunch, Credit Default Swap, David Graeber, David Ricardo: comparative advantage, disintermediation, diversified portfolio, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, financial deregulation, financial independence, financial innovation, financial intermediation, financial repression, Flash crash, full employment, global value chain, global village, High speed trading, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, job satisfaction, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, London Interbank Offered Rate, low skilled workers, M-Pesa, market bubble, means of production, money market fund, moral hazard, mortgage debt, Network effects, new economy, oil shock, open economy, pensions crisis, price stability, Productivity paradox, profit maximization, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, savings glut, Scramble for Africa, secular stagnation, shareholder value, Simon Kuznets, special drawing rights, Thales of Miletus, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, total factor productivity, trade liberalization, transaction costs, union organizing, value at risk, Washington Consensus, zero-sum game

For macroprudential regulation, see Claudio Borio, ‘The Macroprudential Approach to Regulation and Supervision’, VoxEU.org, 14 April 2009. 37 This is a view that has made considerable headway in the UK, see, for instance, John Kay, ‘Narrow Banking: The Reform of Banking Regulation’, Centre for the Study of Financial Innovation, 2009. Kay has called the approach ‘narrow’ banking but this is a misnomer which confuses 100% reserve banking (the traditional meaning of ‘narrow’ banking) with commercial banking in general. The original proposal for ‘narrow’ banking occurred in the US and is associated with the Chicago School, notably Henry Simons et al., ‘Banking and Currency Reform’, in Research in the History of Economic Thought and Methodology, Archival Supplement 4, ed. Warren J. Samuels, Greenwich, CT: JAI Press, 1933; and Irving Fisher, ‘100% Money and the Public Debt’, Economic Forum, April–June 1936. In the post-war period, the idea received strong support from Milton Friedman (‘A Program for Monetary Stability’, New York: Fordham University Press, 1960).

In a nutshell, if commercial banks operated with 100% reserves formed out of state fiat money, there would be no bank runs, the supply of money would be fully controlled, the capacity of banks to create credit would be curtailed, and public debt would be dramatically reduced as the state would acquire fiat claims on circulation. This notion has been recently revived in an IMF paper that curiously combines the monetarism of the Chicago School with the chartalism of radical anthropology; see Jaromir Benes and Michael Kumhof, ‘The Chicago Plan Revisited’, IMF Working Paper WP/12/202, International Monetary Fund, August 2012. ‘Narrow’ banking profoundly contradicts the nature of both money and banking in advanced capitalism. If the state did indeed transform the vast bulk of modern money into fiat along the lines suggested by Benes and Kumhof, capitalist banking as it has been known for centuries would come to an end; the state would also emerge as the arbiter of circulation in command of vast stocks of fiat money.


pages: 475 words: 149,310

Multitude: War and Democracy in the Age of Empire by Michael Hardt, Antonio Negri

affirmative action, Berlin Wall, Bretton Woods, British Empire, business cycle, conceptual framework, continuation of politics by other means, David Graeber, Defenestration of Prague, deskilling, Fall of the Berlin Wall, feminist movement, Francis Fukuyama: the end of history, friendly fire, global village, Howard Rheingold, Howard Zinn, illegal immigration, Joseph Schumpeter, land reform, land tenure, late capitalism, liberation theology, means of production, Naomi Klein, new economy, Paul Samuelson, post-work, private military company, race to the bottom, RAND corporation, reserve currency, Richard Stallman, Slavoj Žižek, The Chicago School, The Structural Transformation of the Public Sphere, Thomas Malthus, Thorstein Veblen, Tobin tax, transaction costs, union organizing, War on Poverty, Washington Consensus

It is still possible when economic intervention, either through welfare (even in its crisis) or warfare (in its crude effectiveness), has invested all the contradictory forces that constitute social life? Keynesianism, putting an end to the naturalist illusion, opened an insolvable problem that political economy would have to face. By the 1970s Keynes’s rethinking of economics was showing negative results. With the expansion of the cold war, Keynesianism was first scaled back by Paul Samuelson to resemble the old mainstream neoclassical doctrine, and then Milton Friedman and the Chicago School arrived to undermine it completely, proposing to establish certain measures of equilibrium by confiding every power of regulation to money, that is, to the market. We were thus taken back, one might say, to the science of economics—but what a strange science! It is now based on a kind of “monetary essentialism” in which the standards of measure no longer have any relationship with the real world of production and exchange, except according to the norms that the Central Bank or the Federal Reserve dictate.

While we wait for an Imre Lakatos or a Paul Feyerabend to overturn economics, it is interesting to note how even though the discipline is lost in its dogmatic slumber some economists reach conclusions close to what we suggest here. Take Gary Becker, for example, who for a half century has been asking the same question: what can it mean to ask if humans can be content or fulfilled in purely economic terms without investing the entire field of biopolitical existence? Surely, the methodological individualism of the Chicago School cannot solve such problems, even if they add new concepts like human capital and cognitive capital. The dismal science, as Thomas Carlisle called it, however, is not doomed. It can be reborn when it takes stock of the new common anthropology and the intellectual and affective power of productive labor, and when it can in addition to capitalists and wage laborers account for the poor and the excluded who nonetheless always constitute the productive articulations of social being.


pages: 470 words: 148,730

Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee, Esther Duflo

"Robert Solow", 3D printing, affirmative action, Affordable Care Act / Obamacare, Airbnb, basic income, Bernie Sanders, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, charter city, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, endowment effect, energy transition, Erik Brynjolfsson, experimental economics, experimental subject, facts on the ground, fear of failure, financial innovation, George Akerlof, high net worth, immigration reform, income inequality, Indoor air pollution, industrial cluster, industrial robot, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Jean Tirole, Jeff Bezos, job automation, Joseph Schumpeter, labor-force participation, land reform, loss aversion, low skilled workers, manufacturing employment, Mark Zuckerberg, mass immigration, Network effects, new economy, New Urbanism, non-tariff barriers, obamacare, offshore financial centre, open economy, Paul Samuelson, place-making, price stability, profit maximization, purchasing power parity, race to the bottom, RAND corporation, randomized controlled trial, Richard Thaler, ride hailing / ride sharing, Robert Gordon, Ronald Reagan, school choice, Second Machine Age, secular stagnation, self-driving car, shareholder value, short selling, Silicon Valley, smart meter, social graph, spinning jenny, Steve Jobs, technology bubble, The Chicago School, The Future of Employment, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, trickle-down economics, universal basic income, urban sprawl, very high income, War on Poverty, women in the workforce, working-age population, Y2K

As a result, economics in recent years has had to reckon with preferences, and we have gained some useful insights about how we might be able to get out of this mess. DE GUSTIBUS NON EST DISPUTANDUM? In 1977, in a famous piece titled “De Gustibus Non Est Disputandum” (usually translated as “There Is No Accounting for Tastes”), Gary Becker and George Stigler, Nobel Prize winners and founders of the Chicago school of economics, made an influential case for why economists should avoid getting entangled in trying to understand what lies behind preferences.2 Preferences are part of who we are, Becker and Stigler argued. If, after we go over all the information we have, two of us still disagree on whether vanilla is better than chocolate or polar bears are worth saving, the presumption ought to be this is something intrinsic to who we each are.

Growth, in short, is beyond our control. GIVE ME A LEVER26 It was a combination of the evidence that many poor countries were not growing and the Solow model’s inability to say something useful about how to affect long-term growth that eventually made economists look elsewhere. They desperately wanted to be able to say something about what could help countries grow. As Robert Lucas, one of the doyens of the Chicago school of anti-Keynesian macroeconomics and one of the most influential economists of our times, confessed in his much quoted Marshall lecture in 1985, he would like to know “if there is some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s? If so, what exactly? If not, what is it about the ‘nature of India’ that makes it so? The consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else.”27 But Lucas had more than just an aspiration to offer.


pages: 1,042 words: 266,547

Security Analysis by Benjamin Graham, David Dodd

activist fund / activist shareholder / activist investor, asset-backed security, backtesting, barriers to entry, business cycle, buy and hold, capital asset pricing model, carried interest, collateralized debt obligation, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, fear of failure, financial innovation, fixed income, full employment, index fund, intangible asset, invisible hand, Joseph Schumpeter, locking in a profit, Long Term Capital Management, low cost airline, low cost carrier, moral hazard, mortgage debt, Myron Scholes, Right to Buy, risk-adjusted returns, risk/return, secular stagnation, shareholder value, The Chicago School, the market place, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, zero-coupon bond

Was this something that a prudent person would do, judged in the light of the circumstances under which the decision was made and in the context of the portfolio as a whole? Thus individual losing investments need not give rise to penalties if the fiduciary’s decisions and results were acceptable in toto. • As part of the development of the finance theory that is attributed to the “Chicago School,” in the 1950s Harry Markowitz contributed the notion that, based on an understanding of correlation, the addition of a “risky asset” to a portfolio could reduce the portfolio’s overall riskiness by increasing its diversification. • Finally, the ultimate contribution of the Chicago School came through the assertion that the “goodness” of an investment—and of a performance record—had to be evaluated based on the relationship between its risk and its return. A safe investment is not a good investment, and a risky investment is not a bad investment.

They famously analogized the market to a voting machine, producing results that are the product partly of reason and partly of emotion, rather than an exact and impersonal weighing machine. (p. 70) The authors relied on a “twofold assumption: first, that the market price is frequently out of line with the true value; and, second, that there is an inherent tendency for these disparities to correct themselves.” (pp. 69–70) Before anyone from the Chicago School has a coronary, let’s hear some more from Graham and Dodd on the first assumption: “As to the truth of the former statement, there can be very little doubt—even though Wall Street often speaks glibly of the ‘infallible judgment of the market’ and asserts that ‘a stock is worth what you can sell it for—neither more nor less.’” (p. 70) If the market gets the “correct” price “wrong” in ordinary investing, such error occurs even more frequently in distressed investing.


pages: 225 words: 61,388

Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa by Dambisa Moyo

affirmative action, Asian financial crisis, Bob Geldof, Bretton Woods, business cycle, buy and hold, colonial rule, correlation does not imply causation, credit crunch, diversification, diversified portfolio, en.wikipedia.org, European colonialism, failed state, financial innovation, financial intermediation, Hernando de Soto, income inequality, information asymmetry, invisible hand, Live Aid, M-Pesa, market fundamentalism, Mexican peso crisis / tequila crisis, microcredit, moral hazard, Ponzi scheme, rent-seeking, Ronald Reagan, sovereign wealth fund, The Chicago School, trade liberalization, transaction costs, trickle-down economics, Washington Consensus, Yom Kippur War

The 1980s also saw the rise of the neo-liberal thinking which argued that governments should liberalize their economies in favour of the laissez-faire paradigm, which encompassed (and indeed acknowledged the importance of) the private market. The experience of the newly industrializing economies of Asia gave these market-based ideas a popularity boost in policy circles in the United States and Europe. The Asian tigers seemed to have achieved high growth rates and unprecedented poverty reduction with free-market policies and an outward orientation. As free-market proponents, Milton Friedman and the Chicago School of Economics had great influence on the policies and thinking of the US President, Ronald Reagan, and the UK’s Prime Minister, Margaret Thatcher. The policies that ensued (Reaganomics and Thatcherism) bore all the hallmarks of an economic revolution, and there was little room for compromise; so too in Africa, where these free-market polices were packaged and sold as the new development agenda.


pages: 219 words: 62,816

"They Take Our Jobs!": And 20 Other Myths About Immigration by Aviva Chomsky

affirmative action, Bernie Sanders, British Empire, call centre, colonial exploitation, colonial rule, deindustrialization, Donald Trump, European colonialism, full employment, guest worker program, illegal immigration, immigration reform, informal economy, invisible hand, longitudinal study, low skilled workers, mass immigration, mass incarceration, new economy, out of africa, postindustrial economy, race to the bottom, Ronald Reagan, Rosa Parks, structural adjustment programs, The Chicago School, thinkpad, trickle-down economics, union organizing, War on Poverty, Washington Consensus, women in the workforce

Domestically, this process has been described as a retreat from the mid-century redistributive government role embodied in the New Deal and the War on Poverty. Although those programs are associated (rightly) with the Democratic Party, the Democrats of the late twentieth and early twenty-first centuries have retreated from the social welfare orientation of their predecessors, at least at the national level. Internationally, the new consensus is sometimes (not very accurately) called globalization. The philosophy behind it can be seen in the Chicago School of Economics–inspired program implemented in Chile in the 1970s, in the Structural Adjustment Programs (or SAPs) mandated by the World Bank and the International Monetary Fund for the Third World in the 1980s, and in the so-called Washington Consensus prescribed for Latin American and other Third World economies in the 1990s. Though they have different names, these policy approaches all encompass similar basic principles, sometimes also called “neoliberal” because they draw on some aspects of nineteenth-century liberal economic thought (which is very different from what Americans generally think of as “liberal” in the twentieth century).


pages: 261 words: 64,977

Pity the Billionaire: The Unexpected Resurgence of the American Right by Thomas Frank

Affordable Care Act / Obamacare, bank run, big-box store, bonus culture, business cycle, collateralized debt obligation, collective bargaining, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Deng Xiaoping, financial innovation, housing crisis, invisible hand, Kickstarter, money market fund, Naomi Klein, obamacare, payday loans, profit maximization, profit motive, road to serfdom, Robert Bork, Ronald Reagan, shareholder value, strikebreaker, The Chicago School, The Myth of the Rational Market, Thorstein Veblen, too big to fail, union organizing, Washington Consensus, white flight, Works Progress Administration

Among that institution’s celebrated champions of efficient market theory, the Nobel laureate Robert Lucas was reported in 2008 to be doubting his former belief in bank deregulation.4 The Nobel laureate Gary Becker confessed in 2009, “There are a lot of things that people got wrong, and I got wrong, and Chicago got wrong.”5 But the most astonishing conversion was that of Richard Posner, another knight-errant of the Chicago school. His 2009 book, A Failure of Capitalism, placed the blame for the cataclysm squarely on his former comrades in the deregulation movement. The collapse “hit economic libertarians in their solar plexus,” he wrote, because it had discredited their free-market philosophy so utterly, so undeniably.6 In 2010, Posner called for the revival of thirties-era banking rules and penned the unthinkable: an homage to John Maynard Keynes, the genius of deficit spending and the bête noire of the free-market crowd.


pages: 237 words: 64,411

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence by Jerry Kaplan

Affordable Care Act / Obamacare, Amazon Web Services, asset allocation, autonomous vehicles, bank run, bitcoin, Bob Noyce, Brian Krebs, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, combinatorial explosion, computer vision, corporate governance, crowdsourcing, en.wikipedia.org, Erik Brynjolfsson, estate planning, Flash crash, Gini coefficient, Goldman Sachs: Vampire Squid, haute couture, hiring and firing, income inequality, index card, industrial robot, information asymmetry, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Loebner Prize, Mark Zuckerberg, mortgage debt, natural language processing, Own Your Own Home, pattern recognition, Satoshi Nakamoto, school choice, Schrödinger's Cat, Second Machine Age, self-driving car, sentiment analysis, Silicon Valley, Silicon Valley startup, Skype, software as a service, The Chicago School, The Future of Employment, Turing test, Watson beat the top human players on Jeopardy!, winner-take-all economy, women in the workforce, working poor, Works Progress Administration

It’s a mystery to me why we seem to treat occupational skills differently than other assets, like some sort of medieval barter system, at great cost to society. If major-league sports figures can securitize their future earnings, why can’t the average person do the same?44 My specific concept of a job mortgage might be new, but the basic approach certainly isn’t. Milton Friedman, leader of the Chicago school of economics, wrote an essay entitled “The Role of Government in Education” in 1955, in which he draws a distinction between “general education for citizenship” and “vocational or professional education.” He recommends that the latter should be subject to analysis as an investment, similar to physical assets, and that government policies be put in place to facilitate investment (as opposed to subsidies) in such training.


Work in the Future The Automation Revolution-Palgrave MacMillan (2019) by Robert Skidelsky Nan Craig

3D printing, Airbnb, algorithmic trading, Amazon Web Services, anti-work, artificial general intelligence, autonomous vehicles, basic income, business cycle, cloud computing, collective bargaining, correlation does not imply causation, creative destruction, data is the new oil, David Graeber, David Ricardo: comparative advantage, deindustrialization, deskilling, disintermediation, Donald Trump, Erik Brynjolfsson, feminist movement, Frederick Winslow Taylor, future of work, gig economy, global supply chain, income inequality, informal economy, Internet of things, Jarndyce and Jarndyce, Jarndyce and Jarndyce, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, knowledge economy, Loebner Prize, low skilled workers, Lyft, Mark Zuckerberg, means of production, moral panic, Network effects, new economy, off grid, pattern recognition, post-work, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Steve Jobs, strong AI, technoutopianism, The Chicago School, The Future of Employment, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, Turing test, Uber for X, uber lyft, universal basic income, wealth creators, working poor

The ancient contempt for work could not survive the decay of slavery, though vestiges of it have lingered in all aristocratic societies. This explains not just the high approbation of leisure by the elite of Keynes’s day, all whom were educated in the classics, but also the hostility to the ideal of leisure by the majority who associated with it not just the idleness of the rich, but with unemployment. The Chicago School notion that being out of work represents a ‘choice for leisure’ is the conceit of economists who have never experienced a day’s unemployment in their lives. With Judeo-Christianity the story gets more complicated. Work is the ‘primal curse’, the punishment by God for Adam’s sin of eating the forbidden fruit of knowledge; but at the same time it is a divine injunction to cultivate the fruits of the earth God has bestowed.


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

3D printing, air freight, airline deregulation, airport security, Akira Okazaki, Asian financial crisis, back-to-the-land, barriers to entry, Berlin Wall, big-box store, blood diamonds, borderless world, Boris Johnson, British Empire, business cycle, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, Charles Lindbergh, Clayton Christensen, cleantech, cognitive dissonance, commoditize, conceptual framework, credit crunch, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, deskilling, digital map, disruptive innovation, edge city, Edward Glaeser, failed state, food miles, Ford paid five dollars a day, Frank Gehry, fudge factor, full employment, future of work, Geoffrey West, Santa Fe Institute, George Gilder, global supply chain, global village, gravity well, Haber-Bosch Process, Hernando de Soto, hive mind, if you build it, they will come, illegal immigration, inflight wifi, intangible asset, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of the telephone, inventory management, invisible hand, Jane Jacobs, Jeff Bezos, Joan Didion, Kangaroo Route, Kickstarter, knowledge worker, kremlinology, low cost airline, Marchetti’s constant, Marshall McLuhan, Masdar, mass immigration, McMansion, megacity, Menlo Park, microcredit, Network effects, New Economic Geography, new economy, New Urbanism, oil shale / tar sands, oil shock, peak oil, Pearl River Delta, Peter Calthorpe, Peter Thiel, pets.com, pink-collar, pre–internet, RFID, Richard Florida, Ronald Coase, Ronald Reagan, Rubik’s Cube, savings glut, Seaside, Florida, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart cities, smart grid, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, spinning jenny, starchitect, stem cell, Steve Jobs, supply-chain management, sustainable-tourism, telepresence, the built environment, The Chicago School, The Death and Life of Great American Cities, The Nature of the Firm, thinkpad, Thomas L Friedman, Thomas Malthus, Tony Hsieh, trade route, transcontinental railway, transit-oriented development, traveling salesman, trickle-down economics, upwardly mobile, urban planning, urban renewal, urban sprawl, walkable city, white flight, white picket fence, Yogi Berra, zero-sum game

Once Britain had run out, its ability to sustain 10 percent population growth each decade (as it had done for the previous seven) would collapse under its inability to grow or transport enough food. Worse, there appeared to be no alternatives—no fuels to replace it, in Jevons’s estimation—and any increases in the steam engine’s efficiency would only make it cheaper and easier to use, thus stoking greater demand and faster depletion. These were not the ravings of a fringe theorist. Jevons was as sober and as mainstream an economist as any Nobel-winning member of the Chicago School today. His suggestion made its way onto the floor of the House of Commons, where no less than future prime minister William Gladstone—then chancellor of the exchequer—referred to the looming peak coal crisis in his budget speech of 1866. A “coal panic” ensued, leading to the appointment of a blue-ribbon royal commission. Five years later, it published the first detailed estimate of Britain’s coal reserves but managed to sidestep Jevons’s conclusions altogether.

The Economist story that name-checked Kasarda as the plan’s architect was “City of the Future” (December 4, 2008). Details on Ørestad are mostly drawn from the Port & City Development Corporation’s report “Urban Development—in Ørestad and in the Harbour Areas of Copenhagen.” 5: The Aerotropolist John Kasarda most closely identifies with the intellectual tradition of the University of Chicago’s urban sociologists. Influential figures of the Chicago School include Robert E. Park and Ernest Burgess, who developed the concentric ring model of urban growth in such works as “The Growth of the City” in The City. One of their intellectual heirs was Roderick D. McKenzie, who studied metropolitan growth and urban hierarchies in The Metropolitan Community. McKenzie’s student, in turn, was Amos Hawley, who was Kasarda’s own mentor and the author of Human Ecology.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

But it is also killed by hierarchy, pride, and bad techniques of physical communication (status differentials, high transport costs, bad mails). Yet it is often claimed that a modern city, nourishing and nourished by the Great Enrichment, is fatally unable to form connections. The claim is part of the almost universal belief that trading somehow damages intimacy. Neither seems to be true, and both are versions of the pastoral. The leader of the Chicago School of urban sociology, Robert Park, offered with his colleagues the conventional antimodern analysis in 1925: “A newspaper cannot do for a community of 1,000,000 inhabitants what the village did spontaneously for itself [but wait: little American cow towns would have four newspapers] through the medium of gossip and personal contact.”24 Who says? The high velocity of time-space has in fact enriched locality and intimacy.

Each sector of the public will therefore demand services from intellectuals favorable to the interests of that sector.”10 That part of the argument is identical to Antonio Gramsci’s on the role of the intellectual: “Every social group . . . creates together with itself, organically, one or more strata of intellectuals.”11 But Gramsci the Italian Marxist (1891–1937) was less of a historical materialist than was Stigler the Chicago School economist. Gramsci believed in a role for rhetoric and the Party, as Lenin did too, and was opposed to an “economism” such as Stigler advocated in his old age, the cynical half-truth that the interests will always win out. The European Civil War of 1914–1989 showed how nineteenth-century theories hatched by the clerisy could kill off liberty and prosperity, and tens of millions of people to the bargain.

Men, elders, union plumbers, millionaires, officials, whites, Americans, middle-aged people, citizens, bosses, and privileged burghers of the town to this day lord it over women, minors, non-union workers, paupers, subjects, blacks, foreigners, the young, illegals, workers, and rednecks. Hierarchy is nasty indeed, leading, for example, to protection for the jobs of middle-class and middle-aged people, and therefore to massive unemployment among young people in Spain and South Africa. We of the Chicago School of economics in the 1970s agreed with the New Left historians of the time in noting, and detesting, the Bad Old Golden Rule: Those who have the gold rule. But after the Bourgeois Revaluation such hierarchy less commonly trumped the outcome of trade, and especially the hierarchy did not in the crucial matter of betterment. The rhetoric mattered. The new rhetoric justified letting trade-tested progress have a go.


pages: 309 words: 78,361

Plenitude: The New Economics of True Wealth by Juliet B. Schor

Asian financial crisis, big-box store, business climate, business cycle, carbon footprint, cleantech, Community Supported Agriculture, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, decarbonisation, dematerialisation, demographic transition, deskilling, Edward Glaeser, en.wikipedia.org, Gini coefficient, global village, IKEA effect, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Joseph Schumpeter, Kenneth Arrow, knowledge economy, life extension, McMansion, new economy, peak oil, pink-collar, post-industrial society, prediction markets, purchasing power parity, ride hailing / ride sharing, Robert Shiller, Robert Shiller, sharing economy, Simon Kuznets, single-payer health, smart grid, The Chicago School, Thomas L Friedman, Thomas Malthus, too big to fail, transaction costs, Zipcar

It’s time to become far more discriminating, and reframe the debate to figure out what needs to grow and what needs to shrink. To unpack the growth imperative, we can start by differentiating among households, firms, and the economy as a whole. Households (or individuals) are the easiest case. In its most abstract form, mainstream economic theory centers on the idea that people maximize their well-being, and that they do so through exchanges with others. The influential formulations of Gary Becker and the Chicago school hold that this economic approach to human behavior can be applied to anything. People can decide that what matters most to them is preserving nature, raising children, or having a leisurely work environment. Income growth is in no way integral to or even implied by the model. Evidence of widespread downshifting, or voluntary trade-offs of money for time, makes clear that maximizing income is by no means a universal desire.


pages: 268 words: 76,702

The System: Who Owns the Internet, and How It Owns Us by James Ball

Bill Duvall, bitcoin, blockchain, Chelsea Manning, cryptocurrency, don't be evil, Donald Trump, Douglas Engelbart, Edward Snowden, en.wikipedia.org, Firefox, Frank Gehry, Internet of things, invention of movable type, Jeff Bezos, jimmy wales, Julian Assange, Kickstarter, Leonard Kleinrock, Marc Andreessen, Mark Zuckerberg, Menlo Park, Minecraft, Mother of all demos, move fast and break things, move fast and break things, Network effects, Oculus Rift, packet switching, patent troll, Peter Thiel, pre–internet, ransomware, RFC: Request For Comment, risk tolerance, Ronald Reagan, Rubik’s Cube, self-driving car, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Steve Crocker, Stuxnet, The Chicago School, undersea cable, uranium enrichment, WikiLeaks, yield management, zero day

I meet Bell in her uptown Manhattan office, in the middle of Columbia’s journalism school, where she immediately opens by explaining why she believes regulation is so antithetical to big tech. ‘I’ve always said the problem with big tech was that you got the engineering model of Stanford University lashed to the economic model of Chicago University,’ she explains. ‘You basically got the free-market Friedmanites as an economic model, and then you have a theory of zero latency engineering.’ Bell is referring to the ultra-free-market reasoning that grew out of the Chicago School of Economics – a school of thought that came to dominate the world and influence the economic policies of Ronald Reagan in the US and Margaret Thatcher in the UK. This economic theory reasoned that markets were the best source of information and of value, and so obstacles to them – regulation, competition policy and other barriers – were usually impediments to that. In big tech, Bell says, this economic orthodoxy – even if it is masked with a socially liberal culture – is fused with a technological mindset of zero latency, or moving as fast as you can and fixing things as you go along.


pages: 290 words: 76,216

What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

They believe that individuals can accurately calculate the odds of any action turning out one way or the other. This is because they treat the economy as a closed system, like a game of draughts. The financial system is explicitly theorised this way by Chicago economists: the risks of all assets are said to be ‘correctly priced on average’. The collapse of 2007– 2008 was therefore impossible. Even economists who reject the full rigour of the Chicago school are professionally constrained to use the language of risk whenever they talk about forward-looking choices. People have ‘risk profiles’; interest rates measure ‘appetite for risk’; government bonds are ‘risk-free’ (except if they are Greek!), asset prices measure risk aversion and rational expectation and so on. Yet turn to the financial press, and we learn that the one thing businesses can’t stand is ‘uncertainty’, that they are always calling on governments to ‘end uncertainty’ about this or that.


pages: 262 words: 83,548

The End of Growth by Jeff Rubin

Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, business cycle, call centre, carbon footprint, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, deglobalization, energy security, eurozone crisis, Exxon Valdez, Fall of the Berlin Wall, fiat currency, flex fuel, full employment, ghettoisation, global supply chain, Hans Island, happiness index / gross national happiness, housing crisis, hydraulic fracturing, illegal immigration, income per capita, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, McMansion, Monroe Doctrine, moral hazard, new economy, Occupy movement, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, quantitative easing, race to the bottom, reserve currency, Ronald Reagan, South China Sea, sovereign wealth fund, The Chicago School, The Death and Life of Great American Cities, Thomas Malthus, Thorstein Veblen, too big to fail, uranium enrichment, urban planning, urban sprawl, women in the workforce, working poor, Yom Kippur War, zero-sum game

More human beings means more brainpower is available to tackle any problem, much like adding RAM to a computer. Simon and Ehrlich came from completely different academic disciplines, which clearly shaped their attitudes to the issue of population growth. Simon completed his doctoral degree in economics at the University of Chicago in 1961. In his research, he was drawn to exploring the economic effects of population change. His free-market upbringing at the Chicago School clashed with Ehrlich’s stance on demographics. Ehrlich, now head of Stanford’s Center for Conservation Biology, did his graduate work in entomology at the University of Kansas, studying with renowned bee researcher Charles Michener. Along the way, Ehrlich’s ecological interests dovetailed with demographics and the study of population. Here’s where the bet comes in. Simon believed that Ehrlich’s environmental approach to the consequences of population growth failed to account for the way prices motivate human behavior.


pages: 290 words: 83,248

The Greed Merchants: How the Investment Banks Exploited the System by Philip Augar

Andy Kessler, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, business cycle, buttonwood tree, buy and hold, capital asset pricing model, commoditize, corporate governance, corporate raider, crony capitalism, cross-subsidies, financial deregulation, financial innovation, fixed income, Gordon Gekko, high net worth, information retrieval, interest rate derivative, invisible hand, John Meriwether, Long Term Capital Management, Martin Wolf, new economy, Nick Leeson, offshore financial centre, pensions crisis, regulatory arbitrage, Sand Hill Road, shareholder value, short selling, Silicon Valley, South Sea Bubble, statistical model, Telecommunications Act of 1996, The Chicago School, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, tulip mania, value at risk, yield curve

Wall Street could relax at last.11 Investment banking was becoming more respectable and stock broking was even listed as a prestigious occupation by the sociologist Vance Packard in his bestselling book The Status Seekers in 1959.12 The Street enjoyed the conglomerates’ merger wave of the sixties and survived the oil crisis of the seventies. But although it was gaining ground, it was not yet a national powerhouse: that change required the major shift in political and economic philosophy that occurred in the last two decades of the twentieth century when free market ideas found favour in Washington. Drawing on the ideas of the eighteenth-century Scottish philosopher Adam Smith, the Chicago School of economists led by Milton Friedman argued that restrictions on trade and business held back growth, heavily influencing the Reagan and subsequent administrations. Deregulation became the order of the day in the 1980s and 1990s. Many industries – airlines, trucking, utilities, energy, banking, telecommunications in the Telecommunications Act of 1996 – were transformed as governments stood back and exposed them to market forces.13 In parallel, following the work of Professor Alfred Rappaport at the North Western University Business School, creating ‘shareholder value’ was elevated above other goals for management.


pages: 302 words: 84,428

Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks

activist fund / activist shareholder / activist investor, Albert Einstein, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial innovation, fixed income, if you build it, they will come, income inequality, Isaac Newton, job automation, Long Term Capital Management, margin call, money market fund, moral hazard, new economy, profit motive, quantitative easing, race to the bottom, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, secular stagnation, short selling, South Sea Bubble, stocks for the long run, superstar cities, The Chicago School, The Great Moderation, transaction costs, VA Linux, Y2K, yield curve

If a Treasury bond and a high-tech startup both seemed likely to return 7%, for example, the vast majority of people would go with the Treasury. Why take the extra risk associated with the startup if no potential increase in return is offered to compensate for the incremental risk? Well, that’s the point: most people would prefer a sure 7% over a possible 7%. In other words, most people are risk-averse. That’s the essential assumption that underlies the “Chicago school” of finance. To describe risk aversion, I say most people prefer safety and disprefer risk—even though I’ve never seen the word “disprefer” in a dictionary. (There’s a big difference of opinion regarding the propriety of that word, with the linguistic establishment railing against it, but I think it’s a great word. If it doesn’t exist, it should.) The widespread dislike for risk and the resultant insistence on incremental potential return if incremental risk is to be borne are the reasons why long-term Treasurys carry higher yields than short-term Treasurys; why high yield bonds promise higher returns than investment grade bonds; why stocks are generally expected to return more than bonds; and why venture capital investing is expected to provide higher returns than public stocks.


pages: 309 words: 85,584

Nine Crises: Fifty Years of Covering the British Economy From Devaluation to Brexit by William Keegan

banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial thriller, floating exchange rates, full employment, gig economy, inflation targeting, Just-in-time delivery, light touch regulation, liquidity trap, Martin Wolf, moral hazard, negative equity, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

Dow went to extraordinary lengths to get his essentially Keynesian views into gubernatorial speeches and in the bulletin’s quarterly climax, ‘The Assessment’. A few of us coined the term Dovian to describe his sometimes convoluted prose. As a Keynesian, Dow was very suspicious of monetarism. Monetarism was a very old economic doctrine whose proponents held that the conquest of inflation was essentially a matter of controlling the money supply. In its modern version it was associated with the American economist Milton Friedman, of the Chicago School. We Keynesians always held the view that controlling inflation was much more complicated than Friedman and his disciples maintained. There was a great debate in the columns of Newsweek in the 1970s between Friedman and the eminent American Keynesian Paul Samuelson. Samuelson once said that Milton Friedman was ‘the eighth or ninth wonder of the world depending on how you score the Grand Canyon’.


pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, commoditize, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, negative equity, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, plutocrats, Plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Right to Buy, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Jobs, survivorship bias, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, wealth creators, working poor, yield curve

Tim Harford is a riveting expositor of the field, lively and fair-minded, and his books The Undercover Economist and its macroeconomic companion piece The Undercover Economist Strikes Back are excellent places to start, both because they are so interesting in themselves and because they give a good initiation in how economists think and study these sorts of questions. Freakonomics, by Steven D. Levitt and Stephen J. Dubner, is a highly successful study of a number of contentious political and social questions from a microeconomic perspective. The work of the Chicago school of economists on areas such as rational choice is worth a look too, perhaps starting with Gary Becker’s Nobel Prize lecture, “The Economic Way of Looking at Life.” Behavioral economics, which has a particular interest in how people think and act, has grown out of microeconomics. You Are Not So Smart, by David McRaney, is an introduction to cognitive mistakes—though that makes it sound a lot drier than it is.


pages: 306 words: 85,836

When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants by Steven D. Levitt, Stephen J. Dubner

Affordable Care Act / Obamacare, Airbus A320, airport security, augmented reality, barriers to entry, Bernie Madoff, Black Swan, Broken windows theory, Captain Sullenberger Hudson, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, feminist movement, food miles, George Akerlof, global pandemic, information asymmetry, invisible hand, loss aversion, mental accounting, Netflix Prize, obamacare, oil shale / tar sands, Pareto efficiency, peak oil, pre–internet, price anchoring, price discrimination, principal–agent problem, profit maximization, Richard Thaler, Sam Peltzman, security theater, Ted Kaczynski, the built environment, The Chicago School, the High Line, Thorstein Veblen, transaction costs, US Airways Flight 1549

Though on Tuesday, acting D.C. schools chancellor Kaya Henderson did request a review. When Brian Jacob and I investigated teacher cheating in Chicago schools, which we described in Freakonomics, we didn’t use erasure analysis. Rather, we developed new tools for identifying strings of unlikely answers. You might ask why we didn’t use erasures, when it is such an obvious approach. The answer: unlike the D.C. schools, the Chicago schools did not farm out grading of the test exams to a third party. What got the D.C. schools in trouble is that the third party routinely analyzed erasure patterns. The internal group that scored the exams in Chicago did not routinely look for erasures; that was only done when there were suspicions about particular classrooms. Conveniently, there was an acute shortage of storage space in the Chicago warehouse where the test forms were graded.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

"Robert Solow", battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

Tawney eloquently put it: ‘So merciless is the tyranny of economic appetites, so prone to self-aggrandizement the empire of economic interest, that a doctrine which confines them to their proper sphere, as the servant, not the master of civilization may reasonably be regarded as…a permanent ‌element in any sane philosophy.’5 • • • Perhaps the most potent argument put forward by the anti-tax movement in recent years has been the notion that taxes are unduly coercive, that they amount to an assault on freedom. Yet it was the lack of coercion involved in taxation that led the late Henry Simons, a founder of the Chicago School of Economics, to endorse the progressive income tax system. Simons’ arguments on the subject have largely been ignored in recent years, but they are worth considering briefly here. Simons, who considered himself a libertarian and is still revered by many conservatives, defended progressive taxation as part of his strong belief in the merits of capitalism. He recognized that capitalism could only survive in a democracy if the general public benefited from it, and this involved redistributing its bounty, which otherwise ends up concentrated in the hands of the few.


pages: 320 words: 86,372

Mythology of Work: How Capitalism Persists Despite Itself by Peter Fleming

1960s counterculture, anti-work, call centre, clockwatching, commoditize, corporate social responsibility, creative destruction, David Graeber, Etonian, future of work, G4S, Goldman Sachs: Vampire Squid, illegal immigration, Kitchen Debate, late capitalism, Mark Zuckerberg, market bubble, market fundamentalism, means of production, neoliberal agenda, Parkinson's law, post-industrial society, post-work, profit maximization, profit motive, quantitative easing, Results Only Work Environment, shareholder value, social intelligence, The Chicago School, transaction costs, wealth creators, working poor

Why would anyone rejoice in the fact that they have no life outside their job? Would this not denote a special kind of madness? A good deal of ideological effort had to be conducted to pave the way for people like James to make an appearance in the world. The branded self or the ‘I, Job’ function is an intense fantasy in the neoclassical mindset. As Foucault (2008: 28) noted in his lectures on the birth of biopolitics, ultra-right-wing economists of the Chicago School like Gary Becker attempted to create a social prototype that would allow economic reason to ‘generalize the enterprise from within the social body … the individual’s life itself – must make him into a sort of permanent and multiple enterprise’. In the United Kingdom, following the rise of coercive-state, Thatcherism and the barbarism of subsequent neoliberal governmental reform programmes, we now see the true consequences of this desire to transform us all into little one-person corporations.


pages: 301 words: 88,082

The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business by Richard Brooks

accounting loophole / creative accounting, bank run, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, carried interest, Celtic Tiger, collateralized debt obligation, commoditize, Corn Laws, corporate social responsibility, crony capitalism, Double Irish / Dutch Sandwich, financial deregulation, haute couture, intangible asset, interest rate swap, Jarndyce and Jarndyce, mega-rich, Northern Rock, offshore financial centre, race to the bottom, shareholder value, short selling, supply-chain management, The Chicago School, The Wealth of Nations by Adam Smith, transfer pricing

But that was exactly where, within a few years, they would end up. Offshore plc While the exploitation of industrial tax breaks was taking serious avoidance from Mayfair to the City, outside the tax advisers’ and inspectors’ offices the era of late-twentieth century economic liberalization was dawning. From 1979 Margaret Thatcher’s government began implementing the monetarism and financial deregulation advocated by the ‘Chicago school’ of economic theory and championed here by the new prime minister’s favoured think tanks such as the Institute for Economic Affairs. Her first and perhaps most significant move was the abolition of exchange controls, the system of currency regulation designed to prevent destabilizing inward and outward flows of finance. Soon followed by the removal of credit controls and the ‘Big Bang’ deregulation of the City, the reforms opened up the British economy in more than just the intended sense.


Affluence Without Abundance: The Disappearing World of the Bushmen by James Suzman

access to a mobile phone, agricultural Revolution, back-to-the-land, clean water, discovery of the americas, equal pay for equal work, European colonialism, full employment, invention of agriculture, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, means of production, Occupy movement, open borders, out of africa, post-work, quantitative easing, The Chicago School, The Future of Employment, The Wealth of Nations by Adam Smith, trade route, trickle-down economics, unemployed young men, We are the 99%

To him, the idea that primitive people with no interest whatsoever in labor productivity or capital accumulation and with only simple technologies at their disposal had already solved the “economic problem” would have seemed preposterous. The notion that hunter-gatherers might not endure a constant struggle to survive was first proposed at the University of Chicago in 1966—home, ironically, to Keynes’s fiercest critics and the most enthusiastic advocates of unbridled, free-market economics. But this time it wasn’t the Chicago School economists who would be pouring cold water on Keynesian doctrine. It was a group of anthropologists, specialists in an obscure branch of the discipline, the study of hunter-gatherers. They had gathered at the university for a conference during an unseasonably cold April to share data they had collected among the few remaining groups of autonomous hunter-gatherers scattered across the globe.


pages: 336 words: 90,749

How to Fix Copyright by William Patry

A Declaration of the Independence of Cyberspace, barriers to entry, big-box store, borderless world, business cycle, business intelligence, citizen journalism, cloud computing, commoditize, creative destruction, crowdsourcing, death of newspapers, en.wikipedia.org, facts on the ground, Frederick Winslow Taylor, George Akerlof, Gordon Gekko, haute cuisine, informal economy, invisible hand, Joseph Schumpeter, Kickstarter, knowledge economy, lone genius, means of production, moral panic, new economy, road to serfdom, Ronald Coase, Ronald Reagan, semantic web, shareholder value, Silicon Valley, The Chicago School, The Wealth of Nations by Adam Smith, trade route, transaction costs, trickle-down economics, winner-take-all economy, zero-sum game

If those who stand the most to benefit from the assertion and who are in the position to know whether the assertion is true fail to provide any data, how, in the absence of any relevant data, are policymakers to make effective policy? The economic models typically used for such matters are not only so theoretical as to be practically worthless, but they assume away the very issue to be proved. Harold Demsetz, a major figure in the Chicago school of economics, whose pioneering work in property rights provided a key foundation for the law and economics movement, argued in 2009 that the dominant neoclassical approach had sought to understand the exploitation of privately owned resources wholly in terms of prices.151 Meaningful creativity, he wrote,“necessarily involves differences between a new work and old works, and this implies that the new and the old are imperfect substitutes.”152 Neoclassical economics is centered, however, on perfect competition, and therefore “does not and cannot embrace creative activity.”153 In plain English, Professor Demsetz was admitting that neoclassical economics can’t measure creativity, yet neoclassical economics underlies much of the current economic copyright theorizing.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, plutocrats, Plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

Vivek Kaul, Easy Money: Evolution of the Global Financial System to the Great Bubble Burst, Sage Publications, 2014. ——, Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System, Sage Publications, 2014. Stephen D. King, When the Money Runs Out: The End of Western Affluence, Yale University Press, 2013. Graeme Maxton, The End of Progress: How Modern Economics Has Failed Us, John Wiley, 2011. Johan van Overtveldt, The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionised Economics and Business, Agate Books, 2007. John Quiggin, Zombie Economics: How Dead Ideas Still Walk among Us, Princeton University Press, 2010. Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton University Press, 2010. David Roche and Bob McKee, New Monetarism: New Edition, An Independent Strategy Publication, 2008. ——, Democrisis: Democracy Caused the Debt Crisis.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, God and Mammon, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, Plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

The ultimate watershed on business’s long march from pariah status towards semi-respectability came when the Chinese leader Deng Xiaoping declared, after starting to open up China’s economy in 1978, that ‘to get rich is glorious’. Nuances may have been lost in the translation, but this embrace of capitalist values by a hardened veteran of the Communist struggle definitively put the big battalions behind the materialist side of the moral argument and appeared to draw down the curtain on the socialist backlash. It is no coincidence that Deng’s conversion broadly coincided with the ascendancy of the Chicago school of economics and the presidency of Ronald Reagan, who oversaw the conclusion of the Cold War. Reagan lauded ‘the magic of the market’. Like Margaret Thatcher in Britain, he ushered in an era of liberalisation and neo-conservatism, policies favoured by economists at the University of Chicago. Other intellectual champions of this ethos included Ayn Rand, mentor of the subsequent chairman of the Federal Reserve Alan Greenspan.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

Support for communism grew and it was considered a very acute challenge for the Western economic model even among leading economists (Amadae 2003). Joseph Schumpeter (1943/2003), famous for describing entrepreneurship as a process of creative destruction, expressed his conviction that “a socialist form of government will inevitably emerge from an equally inevitable decomposition of capitalist society.” Frank Knight of the Chicago School, which later became famous for its uncompromising support of free markets, also expressed serious doubts. “Economics and politics based on competitive mass selling is bankrupt and it is only the question of a successor to bid in the effects of the defunct at a nominal figure,” he wrote in 1933 and argued that elites under communism might be well suited to provide the government control that markets needed (Amadae 2003).


pages: 471 words: 97,152

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

"Robert Solow", affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, plutocrats, Plutocrats, price stability, profit maximization, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, working-age population, Y2K, Yom Kippur War

He wrote the influential book The Economics of Trade Unions.1 In 1966 he left Chicago for Princeton, and shortly thereafter he began taking on increasing administrative responsibilities. He was eventually tapped by President Gerald Ford to be the director of the Council on Wage and Price Stability. He later returned to Princeton, where he became provost, and finally he served as president of the Alfred P. Sloan Foundation. Shortly before his death, Rees wrote a paper for a conference in honor of his old friend Jacob Mincer, also a distinguished labor economist of the Chicago School. (Rees himself had been honored by a similar conference three years earlier.) He used this occasion to look back on his former life as an economist. He made a remarkable confession: that in his later life as an administrator he discovered a devastating omission from his earlier analyses. As an administrator he constantly had to decide what was and was not fair. Yet as an economist the concept of fairness had been totally absent from his analysis.


pages: 296 words: 98,018

Winners Take All: The Elite Charade of Changing the World by Anand Giridharadas

"side hustle", activist lawyer, affirmative action, Airbnb, Bernie Sanders, bitcoin, Burning Man, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cognitive dissonance, collective bargaining, corporate raider, corporate social responsibility, crowdsourcing, David Brooks, David Heinemeier Hansson, deindustrialization, disintermediation, Donald Trump, Edward Snowden, Elon Musk, friendly fire, global pandemic, high net worth, hiring and firing, housing crisis, Hyperloop, income inequality, invisible hand, Jeff Bezos, Kibera, Kickstarter, land reform, Lyft, Marc Andreessen, Mark Zuckerberg, new economy, Occupy movement, offshore financial centre, Panopticon Jeremy Bentham, Parag Khanna, Paul Graham, Peter Thiel, plutocrats, Plutocrats, profit maximization, risk tolerance, rolodex, Ronald Reagan, shareholder value, sharing economy, side project, Silicon Valley, Silicon Valley startup, Skype, Social Responsibility of Business Is to Increase Its Profits, Steven Pinker, technoutopianism, The Chicago School, The Fortune at the Bottom of the Pyramid, the High Line, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, uber lyft, Upton Sinclair, Vilfredo Pareto, working poor, zero-sum game

Shareholders were part of the mix, but the micro-movements of the share price were not the be-all, end-all indicator of a company’s success, nor the guide to how it should be run. Of course, there was waste involved: A lot of capital was not put to the most efficient use. And then in the 1970s and ’80s, as ascendant neoliberalism spawned changes in law and culture, it came to be viewed as the first duty of a business to maximize value for shareholders. “The social responsibility of business is to increase its profits,” the Chicago School economist Milton Friedman declared in the New York Times Magazine in the fall of 1970. Wall Streeters trained in the protocols saw their influence rise as their way of evaluating a company, and their degree of say in how it should be run, gradually took over. Porter watched this phenomenon, which is often called “financialization,” turn companies into the servants of their owners, to the detriment of other considerations.


pages: 391 words: 102,301

Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, Live Aid, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, Nelson Mandela, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, plutocrats, Plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game

Chile’s policies of slashing tariffs and taxes, inflation fighting, privatization, and pension reform were regarded as a model by free-market reformers around the world. But they took place against a background of the imprisonment, torture, and murder of dissidents. General Pinochet’s embrace of the market and assault on inflation came in 1975, after a visit by Milton Friedman, the doyen of the Chicago school of economists, who was to receive the Nobel Prize for economics the following year. Under the Pinochet government, Friedman’s “Chicago boys,” many of them Chilean economists who had trained at the University of Chicago, were given a whole country as their canvas.9 Margaret Thatcher was a strong admirer of both Friedman and Pinochet. When the retired general visited Britain in 1999, the retired prime minister entertained him to tea.


Data and the City by Rob Kitchin,Tracey P. Lauriault,Gavin McArdle

A Declaration of the Independence of Cyberspace, bike sharing scheme, bitcoin, blockchain, Bretton Woods, Chelsea Manning, citizen journalism, Claude Shannon: information theory, clean water, cloud computing, complexity theory, conceptual framework, corporate governance, correlation does not imply causation, create, read, update, delete, crowdsourcing, cryptocurrency, dematerialisation, digital map, distributed ledger, fault tolerance, fiat currency, Filter Bubble, floating exchange rates, global value chain, Google Earth, hive mind, Internet of things, Kickstarter, knowledge economy, lifelogging, linked data, loose coupling, new economy, New Urbanism, Nicholas Carr, open economy, openstreetmap, packet switching, pattern recognition, performance metric, place-making, RAND corporation, RFID, Richard Florida, ride hailing / ride sharing, semantic web, sentiment analysis, sharing economy, Silicon Valley, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, smart contracts, smart grid, smart meter, social graph, software studies, statistical model, TaskRabbit, text mining, The Chicago School, The Death and Life of Great American Cities, the market place, the medium is the message, the scientific method, Toyota Production System, urban planning, urban sprawl, web application

What these new institutes seek, according to Townsend is to pursue ‘deeply quantitative and computational approaches to understanding the city’ (Townsend 2015a; 2015b). The ecological and physical understanding of cities that we find in the new science of cities is not completely new. The beginning of the twentieth century already witnessed scientists like the evolutionary biologist Patrick Geddes starting to map cities in order to gain an ‘objective’ understanding of them. Likewise, the sociologists of the Chicago School in the 1920s were inspired by evolutionary theories, and sought to understand the ‘human ecology’ of cities as a complex A city is not a galaxy 19 system (Sennett 1969; Park 1969). A second wave of this approach emerged with the rise of cybernetics after the Second World War. The social problems of cities, it was believed by, amongst others, the newly founded United States Department of Housing and Urban Development (HUD), could be tackled by modelling cities with the aid of computers.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, diversification, Edmond Halley, facts on the ground, financial innovation, fixed income, George Akerlof, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

According to the Basel market risk amendment, which was now part of U.S. banking regulations, BofA could in principle hold four times this VAR as trading risk capital, a tiny fraction of the 8 percent of loan value in risk capital it would have held as a lending bank. The only caveat was that regulators had to approve the VAR model, and Alfriend’s team rejected it. The Richmond Fed staffers argued that a year’s worth of loan price data didn’t reflect what was likely to happen to the debt in a full recession. The BofA officials responded by channeling the Chicago school of market-efficient economics, insisting that market prices reflected all possible information about the loans, including their potential for default. Alfriend’s team held their ground, doubting that BofA had any intention of trading the loans it was holding. The Fed examiners also spotted an analogous case where VAR was inconveniently big for Bank of America. The bank was making proprietary investments in exchange-traded funds (ETFs), a popular way of gaining exposure to equities using derivatives.


pages: 369 words: 105,819

The Dangerous Case of Donald Trump: 27 Psychiatrists and Mental Health Experts Assess a President by Bandy X. Lee

Affordable Care Act / Obamacare, cuban missile crisis, David Brooks, declining real wages, delayed gratification, demand response, Donald Trump, Doomsday Clock, facts on the ground, fear of failure, illegal immigration, impulse control, meta analysis, meta-analysis, national security letter, Ronald Reagan, Skype, Steve Jobs, The Chicago School

This task proved to be quite difficult, as we therapists were left with similar feelings of helplessness and, perhaps due to our professional training, more concern given the characterological issues we saw in Trump’s behavior and personality. Jennifer Contarino Panning, Psy.D., is a licensed clinical psychologist and owner of Mindful Psychology Associates, a small group practice in Evanston Illinois. She received her doctorate in clinical psychology from the Chicago School of Professional Psychology in 2003, and completed training at Northern Illinois University and Northwestern University. Panning opened her private practice in 2004, and now has three psychologists and a postdoctoral fellow on staff. She specializes in the treatment of mood disorders, eating disorders, college student mental health, stress, and trauma using an integrative approach of cognitive behavioral therapy, mindfulness, and dialectical behavioral therapy, and is also trained in clinical hypnosis.


pages: 398 words: 108,889

The Paypal Wars: Battles With Ebay, the Media, the Mafia, and the Rest of Planet Earth by Eric M. Jackson

bank run, business process, call centre, creative destruction, disintermediation, Elon Musk, index fund, Internet Archive, iterative process, Joseph Schumpeter, market design, Menlo Park, Metcalfe’s law, money market fund, moral hazard, Network effects, new economy, offshore financial centre, Peter Thiel, Robert Metcalfe, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, telemarketer, The Chicago School, the new new thing, Turing test

With the help of several engineers, the displaced ping pong table made its way into David Sacks’s cube. Taped to it was a copy of a commentary he had penned for The San Francisco Chronicle extolling the virtues of firms that empower young employees by giving them stock options and letting them do informal things like play ping pong. The engineers gleefully noted that since they had never actually seen the Chicago School of Law graduate set foot in the ping pong room, they wanted to help Sacks out by bringing the game to him. My unnerving hiring experience and disorderly first day on the job suggested that Confinity wasn’t exactly a structured environment. While a young company with few resources devoted to HR and IT can be forgiven for not planning an orientation session for its new employees, this apparent chaos was still a little unsettling.


pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, social intelligence, starchitect, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor

The important thing is that Savage failed the test. Savage was a brash statistician, then at the University of Chicago. He had gone into statistics on the advice of John von Neumann himself. Visually, the most remarkable thing about him was his eyeglasses. Their lenses packed enough diopters to reveal the space behind his head. At Chicago, Savage had acquired a second mentor, Milton Friedman—founding father of the Chicago school of economics, future Nobel laureate, and veritable saint to Reagan-era capitalists. Friedman knew quite a bit of statistics for an economist. He and Savage had begun a peripatetic collaboration. Savage was attempting to devise a theory of how people make decisions. The decisions that concerned him tended to be about money. He was interested in how people assign prices to goods and services and how they make choices between them.


pages: 385 words: 101,761

Creative Intelligence: Harnessing the Power to Create, Connect, and Inspire by Bruce Nussbaum

3D printing, Airbnb, Albert Einstein, Berlin Wall, Black Swan, Chuck Templeton: OpenTable:, clean water, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Danny Hillis, declining real wages, demographic dividend, disruptive innovation, Elon Musk, en.wikipedia.org, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, follow your passion, game design, housing crisis, Hyman Minsky, industrial robot, invisible hand, James Dyson, Jane Jacobs, Jeff Bezos, jimmy wales, John Gruber, John Markoff, Joseph Schumpeter, Kickstarter, lone genius, longitudinal study, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, new economy, Paul Graham, Peter Thiel, QR code, race to the bottom, reshoring, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, six sigma, Skype, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, Tesla Model S, The Chicago School, The Design of Experiments, the High Line, The Myth of the Rational Market, thinkpad, Tim Cook: Apple, too big to fail, tulip mania, We are the 99%, Y Combinator, young professional, Zipcar

IF WE USE THESE POLICIES as building blocks for creating a new economics of creativity model, what policies might flow from it? What can we all do, in our lives and our businesses, to promote Indie Capitalism? Introducing uncertainty into our economic model may appear difficult because it is so unfamiliar to our thinking but, surprisingly enough, the foundation for an economy that centers around innovation and creation might well lie in the ideas of the man whose thinking paved the way for the Chicago School of Economics. Though he’s best known for work on risk and options theory, which helped establish the foundation for financial capitalism and the efficient market theory, Chicago economist Frank Knight also did important research on the role of uncertainty and the entrepreneur in economic growth. In his book Risk, Uncertainty and Profit, Knight argues that significant, expanding profits come from entrepreneurs finding new opportunities in the messiness of our lives.


pages: 398 words: 105,917

Bean Counters: The Triumph of the Accountants and How They Broke Capitalism by Richard Brooks

accounting loophole / creative accounting, asset-backed security, banking crisis, Big bang: deregulation of the City of London, blockchain, BRICs, British Empire, business process, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Strachan, Deng Xiaoping, Donald Trump, double entry bookkeeping, Double Irish / Dutch Sandwich, energy security, Etonian, eurozone crisis, financial deregulation, forensic accounting, Frederick Winslow Taylor, G4S, intangible asset, Internet of things, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, light touch regulation, Long Term Capital Management, low cost airline, new economy, Northern Rock, offshore financial centre, oil shale / tar sands, On the Economy of Machinery and Manufactures, Ponzi scheme, post-oil, principal–agent problem, profit motive, race to the bottom, railway mania, regulatory arbitrage, risk/return, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, statistical model, supply-chain management, The Chicago School, too big to fail, transaction costs, transfer pricing, Upton Sinclair, WikiLeaks

It was a measure of just how deeply the Big Four had worked their way into the fabric of the establishment. 8 GREAT BRITAIN, LLP THE BEAN COUNTERS MARCH DOWN WHITEHALL The same late-twentieth-century economic forces that transformed the big accountancy firms into ‘professional services’ businesses making most of their money from consulting also turned taxpayers into their most lucrative clients. But since the consultants generally have their own rather than the public’s interests at heart, it is a relationship that comes with a heavy price. The Chicago School-inspired shrinking of the state gave Britain its 1980s wave of privatizations. But once these had run their course and the windfalls had been spent, the low taxes that were here to stay demanded yet more ‘efficiency’. There was nowhere better to find this, ran the orthodoxy, than in the methods of the market. In place of selling off state-owned companies and utilities came the commercialization and outsourcing of public services.


pages: 300 words: 106,520

The Nanny State Made Me: A Story of Britain and How to Save It by Stuart Maconie

banking crisis, basic income, Bernie Sanders, bitcoin, Boris Johnson, British Empire, cognitive dissonance, collective bargaining, Corn Laws, David Attenborough, Desert Island Discs, don't be evil, Downton Abbey, Elon Musk, Etonian, failed state, Francis Fukuyama: the end of history, full employment, G4S, Gordon Gekko, greed is good, helicopter parent, hiring and firing, housing crisis, job automation, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, North Sea oil, Own Your Own Home, plutocrats, Plutocrats, rent control, Right to Buy, road to serfdom, Silicon Valley, The Chicago School, universal basic income, Winter of Discontent

She was inculcated in many of her bedrock, catechistical ideas at the knee and bacon slicer of her dour grocer father Alfred and during her four visits each Sunday to the Methodist Chapel, albeit without picking up much Christian charity it seems. Here she developed her core beliefs: the virtue of self-reliance, the sanctity of private profit and enterprise, a loathing and mistrust of the state and the public sector. These were the deep tribal roots of what became Thatcherism overlaid on which was an intellectual and theoretical framework taken from Friedrich Hayek’s The Road to Serfdom and the Chicago School of Economics as developed by Milton Friedman. Essentially, Friedman espoused that the free market should be allowed to operate as it sees fit with minimal or no government interference. His doctrine was called ‘monetarism’ and meant strict control of the money supply and inflation even if this brought hardship, job losses and cuts in public spending. It was a way of thinking that sought to present itself as a bracing corrective to Keynesianism and the New Deal, theories which had held sway here and in the US for decades.


pages: 366 words: 117,875

Arrival City by Doug Saunders

agricultural Revolution, Ayatollah Khomeini, Berlin Wall, Branko Milanovic, call centre, credit crunch, Deng Xiaoping, desegregation, ghettoisation, Gini coefficient, guest worker program, Hernando de Soto, Honoré de Balzac, illegal immigration, immigration reform, income inequality, informal economy, Jane Jacobs, Kibera, land reform, land tenure, low skilled workers, mass immigration, megacity, microcredit, new economy, Pearl River Delta, pensions crisis, place-making, price mechanism, rent control, Silicon Valley, special economic zone, the built environment, The Chicago School, The Death and Life of Great American Cities, upwardly mobile, urban planning, urban sprawl, white flight, working poor, working-age population

Should they be encouraged and promoted, or should governments find ways, if they can, to prevent the great migration from forming enclaves of newcomers in their less-popular urban spaces? To embrace the arrival city is to put aside generations of thinking, which held that success is measured by dispersal. The original theory of urban assimilation, developed by the sociologist Robert E. Park and his colleagues of the Chicago School, beginning in the 1920s, is built around the earliest understanding of the arrival city. Based on an analysis of U.S. cities (especially Chicago) during a period of heavy rural-origin migration, Park concluded that immigrants start out in highly concentrated populations in rented quarters in poor inner-city areas with low property prices but become integrated and successful only as they leave the ethnic enclave behind and disperse into integrated mainstream society.


pages: 422 words: 113,830