The Death of Chicago School Economics

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Ben Cohen
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Paul Krugman has a giggle at the economists still pimping the neoliberal economics spawned from the University of Chicago:

Here’s Eugene Fama, insisting that there was no financial crisis,
just markets reacting rationally to an economic crisis caused by brain-eating aliensflouridated water
something or other — hey, macro isn’t his department. John Cochrane, on
the other hand, says that it’s all because George W. Bush gave a scary
speech.
What struck me was the fact that Cochrane is still trying the
argument-from-authority thing: this was all proved false in the 1970s,
nobody serious believes in it, etc.

The argument that became popular in the 70's was that Keynesian economics had failed spectacularly (despite it having given America and Europe the greatest period of economic growth in history) because of a period of stagflation. If you look at the picture soberly, it's fairly easy to understand that there were many external factors that caused this, like the big oil shocks and the Vietnam War, but the business elite managed to successfully argue that the welfare state and regulated financial markets were to blame.

What then proceeded was a period of moderate to poor economic growth across the board, but an explosion at the top end as the financial sector became the major engine of western economies, and a massive expanse of inequality. Another characteristic of the post Keynesian global economy has been massively fluctuating markets and financial bubbles. As Chomsky states:

Financial crises have increased during this period, as predicted by a
number of international economists. Once financial markets were freed
up, there was expected to be an increase in financial crises, and
that's happened. This crisis happens to be exploding in the rich
countries, so people are talking about it, but it's been happening
regularly around the world — some of them very serious — and not only
are they increasing in frequency but they're getting deeper. And it's
been predicted and discussed and there are good reasons for it.

The economic meltdown in 2008 epitomized the failures of deregulated markets and has left sane people scrambling to piece together some sort of framework that might prevent another spectacular collapse. Thankfully, this includes some conservatives who have now acknowledged the need for regulation and centrist liberals once beholdent to the financial sector. Yet amazingly, there are still those ardent free marketers convinced the collapse had nothing to do with deregulation and argue that markets weren'tfree enough.

And having endured years of their smugness we now get to laugh at them because they have been proved totally, and utterly wrong.