Chicago School Blogging

18 September 2007 at 9:16 am 6 comments

| Peter Klein |

Ross Emmett, whose work on the Chicago school of economics we discussed here, has been blogging about a recent conference on Chicago economics. The first two posts are here and here. Stay tuned for more, including a post on Hayek coming in the next few days.

Entry filed under: - Klein -, Classical Liberalism, Methods/Methodology/Theory of Science. Tags: .

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6 Comments Add your own

  • 1. srp  |  20 September 2007 at 11:19 pm

    I read the second link above. Really repellent stuff. Mirowski once again covers himself with glory in the comments. Ad hominem much?

    Where do historians get the idea that external funding sources explain the findings in academic economics? Or their reception? And for someone to suggest that “externalist” explanations are obviously good history and “internalist” explanations are obviously bad “Whig” or “think tank” history is pure question-begging. It’s like reading Marxists going on about class consciousness and bourgeois ideology as a way to discredit ideas they can’t refute. Feh.

  • 2. Peter Klein  |  21 September 2007 at 12:48 am

    Personally, I find both “internal” and “external” factors useful in explaining the development of doctrine. But the complaint that a primarily “externalist” history of Chicago economics is unfair or sour grapes strikes me as extremely ironic. After all, isn’t Chicago political economy based entirely on externalist reasoning? If we model politicians and businessmen as self-interested, rent-seeking opportunists, then shouldn’t we model Chicago economists — or any intellectuals — exactly the same way? Surely a purely “internalist” explanation for political change would be regarded by economists as hopelessly naive and ad hoc. Why not apply the same standards to the explanation of intellectual change?

    BTW I recommend Michael Bernstein’s A Perilous Progress: Economists and Public Purpose in Twentieth-Century America (Princeton, 2001) on the history of contemporary economics.

  • 3. srp  |  21 September 2007 at 3:39 am

    The self-interest of scholars is a little different from that of senators–they’re nerdy and like to figure stuff out and get paid for it, which is pretty much what they’re supposed to do. Revealed preference suggests that they’re willing to trade off some income for the benefits of doing what they enjoy.

    But what happened to evidence? Stigler (and his successors) had evidence to support their claims about the behavior of regulators. I haven’t seen anything to suggest that Friedman’s analysis of permanent income, or Stigler’s search theory, or Becker’s theory of the family, were caused by their funding sources. It’s kind of ridiculous, when you think about it. But, then again, I’m just saying that because I’m an agent of the Trilateral Commission and the Elders of Zion.

  • 4. Peter Klein  |  21 September 2007 at 10:07 am

    1. I don’t know about econometric evidence — Dan Klein’s EconJournalWatch would be a good place to look — but there’s plenty of narrative evidence to suggest that institutions matter for the development of economic doctrines. (Check the Bernstein book, for example. And I recall two recent articles from EJW about the influence of funding, one by Larry White on the effect of the Federal Reserve System on research in monetary economics and another by E.C. Pasour, Jr., on the influence of USA funding on agricultural economics research.)

    Moreover, what is the systematic empirical evidence for the “whig” theory? My sense is that the view that truth always wins out in the marketplace of ideas is treated as a basic postulate, not a reasoned conclusion. Its proponents simply take it for granted. It’s as if they’ve never heard of Kuhn!

    2. You’re confusing creation and diffusion. I don’t think anybody claims that particular economic theories are created to support some special interest, only that the adoption and diffusion of particular theories, research methods, modes of discourse, etc. are affected by interest-group considerations. Surely you don’t mean to suggest that the preferences of funding agencies, journal editors, and university administrations have _no_ effect on the kind of research that gets done?

    More generally — and I can’t believe I’m saying this to an economist — you seem to be taking the Alfie Kohn position that extrinsic motivation doesn’t matter (for academics, at least). But this confuses levels with marginal effects. I doubt many professors choose an academic career for the money. But on the margin, the amount of time and energy allocated to specific projects, topics, courses, events, publications, and the like is most certainly affected by extrinsic rewards. After all, even economists respond to incentives, don’t they?

  • 5. srp  |  22 September 2007 at 2:44 am

    1. You’re drifting from the specifcs here. The Chicago School got to be famous because they turned out a lot of work that successfully challenged conventional wisdom while using conventional price theory and simliar seemingly conventional ideas. These challenges were “successful” in the David Hull sense that even those who disagreed found it important to deal with their claims. Eventually, they changed the climate of opinion and won a bunch of Nobel prizes and so on.

    As a result of these specific innovations, they got a lot of academic fame and status, got paid more money, and got to do more of what they enjoyed. (A few divorces along the way, but I think it was Yeats who said something about “perfection of the work or the life.”) In what sense would you say that there was any marginal effect of funding on their incentives to do these things? More likely, if they received ideologically motivated funding, their sources sought them out because of their inclinations, rather than bending their inclinations to get funding.

    Interesting test case for historians: Stigler started out as a big trustbuster who wanted to break up GM. “Whig” history says that UCLAers like Demsetz and Alchian converted him to his famous skepticism about antitrust policy. Can the “externalists” show that he was actually bought off?

    As for whether science has a long-term drift to the truth, that’s a bigger question. In the short run it’s a voting machine but in the long run it’s a weighing machine. I take an incentive compatibility approach: If progress in your own work depends on correctly assessing the contributions of others, and you are primarily trying to satisfy your own curiousity, then the corrective mechanisms mentioned by Polyani in his Empire of Science essay work really well.

    In the long run, most fields of science work that way. In the short run, all kinds of careerist and funding concerns intrude, especially for people who need lots of funding to do anything at all. Stuff that is done for applied policy purposes is most subject to external influence, especially when the government is funding things that affect government policy.

    2. You’re moving the goalposts by talking about diffusion rather than creation, but OK. One of the clear findings of the optimal tax literature, found in all the best textbooks, is that the highest marginal income tax rate should be zero. Unlike lump-sum taxes, this could be implemented at no cost to other taxpayers by starting the bracket higher than anyone currently earns. How well known is that finding? How many rich patrons are diffusing that idea to the public?

    Or think about the empirical evidence showing that the actual application of the antitrust laws is at best neutral and probably detrimental to the economic welfare of the nation. How well has that diffused? Lots of rich capitalists might like that meme to get out, too.

    I can’t believe I have to explain to an economist that compensating differentials have nothing to do with Alfie Kohn. Just as Adam Smith noted that headsmen had to be paid a premium relative to the skill of the job, lots of people take a pay cut to be in academia, and within academia would be willing to take lower pay in order to work on topics that interest them. Tradeoffs 101–picture people rolling around that indifference curve in on-the-job-amentiy/material-consumption space.

    My point is that most of the kinds of funding sources available to economists are probably a) not directional enough to explain either the nature of the findings or the rate of their diffusion and b) inframarginal in that they push people to do things they would have done anyway.

  • 6. Peter Klein  |  22 September 2007 at 8:56 am

    You keep talking about the personal actions of Friedman, Stilger, and Becker. I didn’t attend the conference described in the original post, so I don’t know exactly what was discussed, but I thought you and I were talking about the dominance of the Chicago school, or approach, or style, more generally. I have no idea what moivated Friedman personally. I doubt Stigler was paid to change his view on antitrust. But I am quite certain that institutions play an important role in the adoption and diffusion of particular ideas, be they Friedman’s or Stigler’s or anyone else’s.

    As for institutions, I don’t see how you can tell the history of the Chicago school without reference to Aaron Director, the Cowles Commission, the expulsion of T.W. Schultz and D. Gale Johnson from Iowa State, the Journal of Law and Economics, etc.

    Your examples are unconvincing. Antitrust is a perfect example for externalists, not internalists. The set of “rich guys,” antitrust lawyers and consultants, etc. who benefit from the antitrust status quo is vastly greater than the set who would gain from reform. Concentrated benefits and dispersed costs. And don’t even get me started on agricultural policy.

    Why bring in compensating differentials? Of course they explain why academics get paid less, on average, than other professionals. But they have little to do with the choice of activities within career. Are you suggesting that professors never choose to work on Topic X, which interests them less than Topic Y, because there is a funding opportunity for X? Of course there are trade-offs; the question is which direction people are moving along that indifference curve. They can trade off intrinsic for extrinsic satisfaction just as easily as the reverse.

    More generally, you seem focused on tearing down the straw-man position that _only_ extrinsic motivation matters. Either scholars are angels, pusuing Truth wherever it leads, or they are stooges for the Trilateral Commission. You ignore the intermediate position that _both_ preferences and constraints play important roles, in the long as well as short run.

    Overall, I think this exchange is starting to generate negative marginal returns, and I hope others will join the discussion, so I don’t want to say much more. But recall that your initial complaint was that externalist histories of the rise of the Chicago School — not the personal fame and fortune of Friedman, Stigler, Becker, etc., mind you, but the success of the Chicago approach itself — were ad hominem, question-begging, lacking evidence, “ridiculous.” You haven’t convinced me. You’re welcome to your opinion expressed in the last paragraph above, but it strikes me as far from obvious.

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