Letters
“...the self-absorbed eggheads who usually fill your pages.”
How limited government?
Michael Fitzgerald’s (AB’86) “Chicago Schooled” (Sept–Oct/09) is based on a false premise, namely that the proponents of the Chicago School “simply” believe that “economies work best when markets operate freely, with limited government participation,” while their critics do not “believe in free markets”—as if Keynes, Thaler, Vishny, Stiglitz, and Krugman are committed socialists. The result is a straw man, in which proponents of the Chicago School can take credit for the successes of any economy with any private sector—from China to India to Chile—without acknowledging the importance of the government in these economies or their own intellectual weaknesses.
What are those weaknesses? The first is arrogance, captured nicely by Kevin Murphy’s (PhD’86) sneer about the government and GM. Who might put the government in charge of remaking GM, as opposed to, say, former GM CEO Rick Waggoner and his somnolent board of directors? How about GM’s employees, dealers, suppliers, competitors, the taxpayers, etc.? The second, more important weakness, is the tendency to ex post facto redefine and enlarge the concept of “limited government intervention” when real-world circumstances demonstrate the weaknesses of unregulated markets.
Thus, in September 2008, before the collapse of Lehman Brothers made the issue of systemic risk undeniable, Chicago School purists hated government intervention. They predicted terrible consequences if we did not let market forces play themselves out. But now that we have stepped back from the abyss, they have redefined limited government intervention to include helping Wall Street firms but not, God forbid, helping the poor obtain health insurance.
Andrew Goldsmith, MBA’95
Takoma Park, Maryland
By any other name
The social ideology of the free-market economists suggests that they are just teabaggers in academic robes.
Dorothy Weil, AB’49
Cincinnati, Ohio
Auto recovery
Professor Kevin Murphy offers us the wrong question. After years of steadily losing market share and the No. 1 place of the world’s largest auto maker to Toyota and then finally going bankrupt, he needs to rephrase his question: “Who in their right mind would put General Motors in charge of remaking General Motors?”
Thomas Glynn, AB’58
New York
Chicago School sticking around
Reports of the demise of the Chicago School of Economics and “rational” markets are greatly exaggerated. If enough people believe that stock prices will go down, real-estate values will decrease, unemployment will go up, and credit will tighten; these will become self-fulfilling prophecies. This phenomenon was ably described in Malcolm Gladwell’s The Tipping Point. It does not mean that consumers are not rational or markets are not efficient. Consumers still try to maximize their utility. However, what people perceive to be in their self-interest changes, not just in response to different circumstances, but as opinions of others also change (network effects).
The demise of the Chicago School is wishful thinking on the part of those who find the recession a convenient excuse for greater government involvement. Government involvement is the problem, not the solution. Indeed the root cause of the real-estate bubble can be traced to the promulgation of the fallacy that all Americans can afford to own their own home and then using Fannie Mae and Freddie Mac guarantees to subsidize and encourage this folly.
Thomas J. McNamara, AB’76
Port Washington, New York
Missing markets
A table at the end of Charles Kindleberger’s Manias, Panics, and Crashes, Fifth Edition, lists about 40 major equity-crash market failures since Tulipmania, 1637. It should be enough to persuade many that the efficient-market hypothesis is little more than propaganda for buy-and-hold index investing. Should we blame economists’ free-market propaganda for our losses suffered as a result of swallowing it? Notably absent from Fitzgerald’s nice article is any consideration of Main Street market failures. But how Wall Street’s markets fare is connected to Main Street market successes and failures.
It should be notorious that the current crash started with the Bush-era program to boost home ownership among people without sufficient income, especially when the housing produced was beginning to show the same signs of over-productive wretched excess (in size, features, expense) shown in other consumer products, e.g., SUVs, food (sugar, salt, fat). With labor-market failure to keep real wages and incomes stable, there was no way boosting home ownership could succeed without field-day fraud and eventual default.
Regulation could help smooth out equity crashes. But without governmental fixes for real economy Main Street market failures, a basic problem of overproduction and underconsumption will inevitably choke market systems repeatedly.
Robert Cogan, AB’62
Edinboro, Pennsylvania
Michael Fitzgerald’s article is a good overview of the Chicago School of Economics but contains a few incomplete if not misleading assessments.
Concerning the efficient-market hypothesis, whether markets are efficient or rational may not be the right question. First, whose market? They are not homogenous and vary in behavior across national economies, industry, and trading systems. A market in Russia is different from one in Canada. The transport sector is distinct from the market in women’s shoes; public markets are an alternative to private ones. The EMH is not some universal law, like gravity in physics.
Concerning modern portfolio theory (MPT), Chicago research is focused almost exclusively on financial-asset pricing behavior (rather than actual industry economics) directed toward the conservative management of large amounts of pooled money under limited information. It says nothing per se about venture or private-equity direct investments, for example, that take disproportionate amounts of risk in concentrated positions, contrary to MPT. It has been long understood that wealth is created by risk concentration (violating theory) and then preserved in diversity.
Concerning public policy, academia tends to have a simplistic analog view of markets versus the state. Both play a role in most normative views of an equitable society, but it is the way their relationship is structured and the degree to which one may be necessarily weighted in certain industries that is relevant.
Of course, Chicago’s instincts about government are generally right: most are neither rational nor efficient, operate as a monopoly and usually provide negative real rates of return, except, as ranked by the World Bank, in certain cultures such as the Nordic region.
As for Milton Friedman, AM’33, and free markets, it has been said that not one grain of anything in the world is traded in one, except perhaps the speeches of politicians.
Matt Andersson, MBA’96
Oak Brook, Illinois
No more superstars, please
A school of economics affects an attitude, not a population, and certainly not a global population. Less government regulation can be a good thing. Then again, what makes one person worth millions of dollars a year and another just, say, $50,000? Both likely work 50–60 hours each week. Forget about the argument that we can’t get the best CEO unless we pay them high salaries. It’s a marketing phrase.
Let’s take a look at the roots of the current economic problem: greed, money, power, and control. What’s the difference between a star and a superstar? George W. Bush wanted to be a superstar, so he authorized an invasion of Iraq that has cost Americans billions of dollars and took a budget surplus into a huge deficit. Barack Obama wants to be a superstar, so he throws more money at the struggling economy. ...
Greed is a global problem, as we still have dictators in charge of countries, and many more eager to take their place. Billions of dollars were lost in Iraqi reconstruction and billions more paid in exorbitant expense charges. Money drives the global economy, and getting ahead is paramount. The G7 is now the G20.
Can we rely on government to oversee the economy? Obviously we cannot rely on the financial industry to regulate itself. Because all the people elected to the U.S. Congress and Senate have ties to special-interest groups, they are hardly impartial. Somewhere we lost the elected by the people to elected due to moneyed people.
Is there an answer? I’m not sure. Stay away from high-risk, high-gain investments. Guaranteed income of 4 percent a year is better than a loss. Find an income you’re happy with, all bills paid, no past-due notices, and the chance of a modest vacation this year. But I’m just a pharmacologist, with investments.
Henrik K. Kulmala, PhD’81
Third Lake, Illinois
Back to his point
In “Chicago Schooled,” there is a parenthetical comment that jumped off the page. It occurs in the paragraph that begins, “In 1946 Chicago already had a neoclassical presence...” and continues, “Hutchins wanted specifically antistatist thinkers...enlisting help from the now-defunct libertarian William Volker Fund to hire, among others, Aaron Director...Friedman...and Hayek at the Committee on Social Thought (the economics department nixed Hayek).”
That last parenthetical comment stood out for me because in the Feb/02 issue, you published my letter about the article “Wealth of Notions” by Allen Sanderson (Dec/01), in which I made the same point that the economics faculty rejected Hayek’s appointment to their department, and that’s why he ended up in the Committee on Social Thought.
Along with my letter, you also published a response by Mr. Sanderson, which very deftly denigrated my contention without actually denying it. It is gratifying to see my point reiterated once again in print.
Jay R. Baker, SB’59, SM’60
Rockville, Maryland
We have met the enemy, and...
The issue seems to be, when it comes to the current economic disaster in the United States, “Is Chicago School thinking to blame?” What a silly question. Let’s review the facts.
Remember your Sept–Oct/08 issue, the one with Obama on the cover that offered up the rhetorical question, “How U of C is Barack Obama?” You neatly concluded, without coming right out and admitting to it, that the conclusion was yes: Obama was/is the U of C, or vice versa.
So, let’s just add this up. The good senator, since becoming our president, has decided that the federal government would be the primary owner of General Motors and most of Chrysler and on another front has spent $787 billion of taxpayer dollars on a stimulus plan, which has resulted in the U.S. unemployment rate now hovering near 10 percent. The president wants to put into law a government-run health-care plan that will cost a few trillion dollars once it is fully implemented, and along the way put many large, shareholder-owned insurance companies out of business. Our good president wants to put into law a cap-and-trade bill that will cost every family in the United States about $2,000 a year, give or take $1,000, despite the fact that the rest of the world, in practical terms, has said no to this same proposal because it would result in hindering both growth and free trade.
But there is more. We are about to have a tax increase, one way or the other, in addition to allowing the Bush tax cuts to expire. Let’s be honest here, someone will have to pay for all this investment, and we can’t keep printing money forever, as an old U of C professor of mine used to say. How about the Cash for Clunkers program? What a great idea that was. Who would have thought that the good old U.S. government, in addition to bailing out and basically owning General Motors, would also be willing to subsidize the purchase of cars made in or by Japanese corporations? Brilliant. Just print a few billion dollars, and there you have it—average MPG in the United States went up by an immeasurable amount, ditto for emissions going down. But sometimes it’s the thought that really counts. ...
Oh, and we just cannot leave out the Federal Reserve. As President Obama has said, the actions of the Fed saved us from another great depression. All we had to do was print money, pour those dollars into the U.S. economy and around the world, and slap those same dollars on the federal balance sheet as a few trillion of additional debt. Someone can figure out later how we will ever meet our annual interest obligations, not to mention all of our foreign debt holders.
There you have it. Of course it is true that Chicago School thinking is to blame for this mess. After all, the University of Chicago is President Obama. Or is it the other way around? I forget.
Arthur E. Henningsen Jr., MBA’72
Wayzata, Minnesota
When market solutions don't fit
Many years ago at a University of Chicago Club meeting in Portland, Oregon, I heard Milton Friedman speak in favor of a professional army in lieu of universal service or the draft because it was “cheaper.” What else would you expect an economist to say, especially one who had never shed blood or shouldered a rifle in service of his country?
He has had his way, and in consequence as a nation, we have traded “duty, honor, country” for bumper stickers that say, “Support our troops.” The fact, of course, is that most citizens do that only with bumper stickers and the grudging payment of taxes. This is what concerned George Washington when in his farewell address he warned against “the impostures of pretended patriotism.”
Although the Chicago School may be right when it says that the government should not be trying to remake General Motors, it should also remember that freedom is not won and preserved by the cheapest price that clears the market.
Robert Weiss, JD’48
Portland, Oregon
Chicago boy myths
I am writing solely to correct falsehoods that it would be very easy for the Magazine to check and refuse to publish. In this case, the letter from Richard C. Thomas, AB’71 (Sept–Oct/09), repeats lies about the role of Milton Friedman (and other U of C economists) in 1970s Chile.
Here’s the honorable truth, as summarized in an article critiquing the Naomi Klein book that Thomas relies on:
“In fact, Friedman never worked as an adviser to, and never accepted a penny from, the Chilean regime. He even turned down two honorary degrees from Chilean universities that received government funding, because he did not want to be seen as endorsing a dictatorship he considered ‘terrible’ and ‘despicable.’ He did spend six days in Chile in March 1975 to give public lectures, at the invitation of a private foundation. When he was there he met with Pinochet for about 45 minutes and wrote him a letter afterward, arguing for a plan to end hyperinflation and liberalize the economy. He gave the same kind of advice to communist dictatorships as well, including the Soviet Union, China, and Yugoslavia.
“Klein twists this relationship beyond recognition, claiming Pinochet’s 1973 coup was executed to allow free market economists (‘the Chicago Boys,’ as the economists from Friedman’s University of Chicago were called) to enact their reforms. This false link is crucial for giving the impression that the Friedmanites have blood on their hands, since the most violent period of the regime came right after the coup. But Friedman’s visit, which Klein claims started the real transformation, came two years later. Klein insists on having it both ways.
“The reality was that Chile’s military officials were initially in charge of the economy. They were corporatist and paternalist, and they opposed the Chicago Boys’ ideas. The air force controlled social policy, for example, and it blocked market reforms until 1979. It wasn’t until this approach led to runaway inflation that Pinochet belatedly threw his weight behind liberalization and gave civilians ministerial positions. Their success in fighting inflation impressed Pinochet, so they were given a larger role” (www.cato.org/pub_display.php?pub_id=9669).
The review describes Klein’s description of Friedman, et al., as “a malevolent distortion.” It would be too much to expect that an ignorant AB’60s radical would deign to learn why U of C economics has enhanced freedom and prosperity around the world.
Darrell Dvorak, MBA’70
Lake Forest, Illinois
Where’s the empathy?
It was a stimulating experience reading some of the articles in the Sept–Oct/09 issue of the University of Chicago Magazine. Two in particular drew my attention, though I’ll quote from a third. First, the insert on page 30 describing the work of Brian Weinstein and his QUIET team (“Cosmic Detection,” Investigations, Sept–Oct/09), who are trying to detect the gravity waves left over from the big bang by the imprint they would leave on the polarization of the cosmic microwave background (CMB) radiation that is presently observed—a challenging and important area of research of considerable current interest.
Second was Michael Fitzgerald’s article on the Chicago School and the economy. Now, just as the anticipated gravity waves leave an imprint on the CMB, so too my experiences as a youngster during the Depression of the Thirties have left an imprint on my thinking about economics, which is why I noticed a glaring omission in the exchanges and comments of these distinguished economists: their failure to empathize with the hardships experienced by average folks because of the severe economic downturn, such as described in the article by Lydialyle Gibson, “On the Line.”
There have been millions of workers who have been laid off in the past few years, who are now living in straightened circumstances, not because of poor performance on their part, but rather because of the poor performance of the market system. Indeed, one reads in Gibson’s article, “‘It’s less and less uncommon,’ says Kathy Donahue, Catholic Charities’ director of programs, ‘to find working people among those in line for a hot meal.’” The basic problem is that the system of economics that informs the thinking of many economists tends to maximize the wealth of a relatively small number of people, without imposing the constraint of requiring the simultaneous well-being of the average citizen, including a substantial reduction and eventual elimination of those below the poverty level, as well as a significant reduction of those in prison. This social constraint is what government is intended to bring about, i.e., “to provide for the general welfare,” as stated in the Preamble to the Constitution. Not placing sufficient emphasis on this fundamental injunction is the basic flaw in the Chicago School of Economics and our present system of capitalism more generally. Unless one admits this and redesigns one’s approach to economics, this tragic situation will reoccur over and over again, eventually, alas, bringing down our nation.
Frank R. Tangherlini, SM’52
San Diego
Not font of the freeloader
Mr. Scott Wilbur is a freeloading, self-absorbed jerk (“Will Work—But Not Pay—For Food,” Chicago Journal, Sept–Oct/09). Glorifying such an amoral character may provide a cute story for the University of Chicago Magazine, but to realize that those twisted values will guide his behavior in the “real world” is frightening and maddening. Does he represent the next generation of thieves such as Madoff? Stating the obvious, if everyone acted like Mr. Wilbur, society would collapse. Is that cute?
Marc S. Frank, MBA’95
Westminster, Colorado
Job requirement: Narcissism
Like the article “We’re So Vain” (Arts and Sciences, Sept–Oct/09). What discourages me is, somewhere along the way, narcissism became a sought-after attribute in a senior executive. If they don’t have an ego and publicly flaunt feeding that ego, they are not fit to be a captain of industry.
Steve Wirth, MBA’85
Portage, Michigan
Civilized boxing
In a letter published in the Sept–Oct/09 University of Chicago Magazine, a pair of readers characterize boxing as “one of the most thuggish and uncivilized occupations on Earth.” Boxing, like the other martial arts, calls for strict discipline both of mind and of body and, as such, is a highly civilizing activity: its corruption for the entertainment of sedentary spectators is another matter. Take a look at one of the best Chicago research products that I’ve ever seen: Loïc Wacquant, AM’86, PhD’94, “Body and Soul, Notebooks of an Apprentice Boxer.” Its preface is available here.
Paul Edward Geller, AB’61
Los Angeles
Read more about Wacquant in “Out of the Ring, Into the Fire,” June/04—Ed.
Now in his and hers editions
My wife and I are still living together. You need send us only one copy of the Magazine.
Joseph Richard, AB’53, MD’57
Denver
After getting married in 2001, we contacted the Magazine (take that as a sign of our loyalty to Chicago, please, rather than confirmation of our dorkiness) to announce that you no longer needed to send us two copies or print two labels. And so you didn’t, for eight years. The one-label, two-person arrangement followed us to four different addresses and across the country, from Southern California to western Massachusetts.
And then this Monday, two copies of the Magazine arrived at our house, each bearing an individual label. We are still very much married. We still share the same residence. We still think that it’s silly for the Magazine to waste an extra issue, plus postage, on our household. So what is the source of this mysterious development, and can it not be reversed? Can’t we just go back to the good old times?
Amanda Walling, AB’99
Boris Wolfson, AB’97
Amherst, Massachusetts
We apologize for the double copies sent to married alumni last issue; it was a database glitch we hope not to repeat.—Ed.
What makes the world go round
It figures. In July–Aug/09 you ran a feature on Mark Allen, AB’01 (“The Fighter Still Remains”), a reformed drug addict turned boxer. As I read his story, I was intrigued by what he had gone through and thought to myself that Allen would actually be someone interesting to sit down with over coffee, unlike the self-absorbed, pretentious eggheads who usually fill your pages. Alas, the eggheads struck back. Your Sept–Oct/09 issue had three letters to the editor on Allen, one of which engaged in an almost incomprehensible rant on Alcoholics Anonymous, and two of which found him an inappropriate subject for an alumni mag. It is ironic that the same issue had a cover article on Milton Friedman, who likely has done more damage to the world than anyone living, with the possible exception of Alan Greenspan. So much for eggheads. I’ll hang out with Mark Allen.
Philip Giraldi, AB’68
Purcellville, Virginia
Historical note
I feel a need to weigh in on the question of the U of C’s treatment of local African Americans in the 1950s (“Color Lines,” Jan–Feb/09 ). I was a scholarship student from an all-white Chicago public high school, starting in 1951.
I had Abraham Lincoln Harris for Soc. 2 that year. In my five-year residence on campus, I had eight or nine different campus jobs. Two times I had African American bosses. Doris Lloyd in the veteran’s affairs office took me to hear her husband’s gospel choir. My fellow clerk, Barbara, was also black. I worked all too briefly in the veteran’s vocational testing center in Cobb Hall. My boss there, Quentin Doty, was probably the best boss I ever had.
I don’t know what the College policy on black students was at the time. I met two black fraternity members, and I don’t recall any others. It’s possible the U of C’s local reputation in the ’50s discouraged applications. In my Northwest Side home, many neighbors thought the whole campus was full of various dangerous radicals, principally communists. My parents were advised by one of my high-school teachers to not let me attend. They were in fact unaware of my black professor and bosses because they were from the mid-South and so firmly racist that they would have pulled me out of the College had they known. Since I had grown up in Chicago, I did not share their biases, and my life was enriched by the College, the people I met there as well as the classes.
Lucy B. Jefferson, AB’54, AB’55, AM’57
Boston
Researcher remembered
I grieved to hear of Malcolm Casadaban’s passing last month (see Deaths). For those of us in the mid-1990s who were taking our first undergraduate steps into the world of molecular biology, Malcolm was an indelible figure. He certainly changed my life and propelled me into choosing life as a professional scientist.
As a freshman looking for a summer research project and all of 17, I knew next to nothing about molecular genetics—and at our first meeting was utterly unprepared for this mild-mannered man with bright blue eyes and an uncombed shock of crazy white hair. And even less prepared for a rambling, chaotic, joyous, tumultuous, full-on conversation on the genetic architecture of the arabinose, rhabdose, rhamnose operons, the possibility of adapting them for use as tools for the detection of protein-protein interactions, preliminary experiments using bacteriophages to create the relevant constructs, and somehow touching on transgenic pigs—that lasted for three hours and was utterly over my head and felt like being trapped inside a fire hydrant. And I loved it.
Over the years that I worked with Malcolm, I learned a tremendous amount about bacteria, phages, and molecular biology. And I did so without the benefit of an organized textbook, by talking to someone who quite literally helped invent the field (though it was only from others that [I] learned just how famous he was—that was the essential modesty of the man). I will always remember him as the most brilliant man I’ve met—bursting at the seams with ideas, thoughts, and dreams. He was a nightmare to TA for—it involved being a cross between Xanthippe and a sheepdog to try and corral him through a simple genetics demonstration because even there, he just wanted to talk, and think, and dream about science. To share his fascination and his delight.
And it was never even necessarily his own work—his office (a surreal landscape of towering stacks of paper that were five- and six-feet tall) was littered with e-mails and notes from colleagues thanking him for the time, effort, and generosity with which he listened to others’ scientific puzzles and offered ingenious, creative, and brilliant advice. Because, more than anything, Malcolm loved science. Loved it the way that some kids love baseball or football or cricket. But loved it and rejoiced in it because it was play to him. Not a game, I want to say—there wasn’t anything trivial about it. Play, as they say, for mortal stakes.
I am, many years later, about to start my own postdoctoral fellowship. I don’t think I’ll ever be lucky enough to have a brain like Malcolm’s. Malcolm dreamed in riotous Technicolor: so active, popping with wonderful new ideas, and able to extrapolate with his unique blend of rigor and verve, from an interesting fact or two to an incisive and beautifully elegant research problem. I am a far more pedestrian scientist. But I hope that all of us who were lucky enough to know him will carry on something of his kindness, his utter humility, his extraordinary gentleness, and above all else, that playful, brilliant, leaping delight in science. We are all poorer for his passing, and I know I will miss him.
Sagar Koduri, SB’97
Brookline, Massachusestts
Department of corrections
In the July–Aug/09 Investigations, a photo caption should have identified Melvin Butler as a faculty member in the Department of Music. We regret the error.
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