Wednesday, November 12, 2008

Chicago Schoolers OK Obama

In the print edition of the Wall Street Journal dated November 8-9, 2008, the article was headlined: 'Chicago School' Dons give Obama High marks. Online the headline is: Obama Builds Ties to 'Chicago School'. Somewhat different.

"The Chicago School of Economics" has become shorthand for a no-holds barred free-markets view of the world that borders on the libertarian. At the University of Chicago, Milton Friedman laid the intellectual foundations for the anti-inflation, tax-cutting, small-government policies of President Ronald Reagan and British Prime Minister Margaret Thatcher.

They still spew this nonsense: Reagan raised taxes, and grew government. Once established, a myth lingers, especially when it is repeated as gospel.

So in some ways it's strange that President-elect Barack Obama has been bouncing ideas off Chicago economists and counts some of them as his closest advisers. It's a sign of how the world has changed, with many ideas championed by Chicago economists finding greater acceptance. It's also a sign of how Chicago has changed -- though many economists at the university hold that the "Chicago School" was never quite what outsiders deemed it to be.

In some ways? That's inexact. Unspecific.

"The outside perception of Chicago economists is that they all believe whatever Milton Friedman believed in 1950," said Richard Thaler, an economist at the University of Chicago Booth School of Business and an adviser to Mr. Obama. "The correct perception here is: Data rules."

Economics has been changing a great deal in the last two or three decades.

One reason for the alliance among economists at Chicago and elsewhere with Mr. Obama is that they feel he is a fellow traveler, sharing their empirical, data-driven bent. James Heckman, a University of Chicago Nobel laureate, looked over the Obama campaign's education plan at the request of Austan Goolsbee, a Chicago business-school economist who is expected to head the White House Council of Economic Advisers.

Uh-oh, good thing Governor Palin didn't hear that Senator Obama is a fellow-traveler.

"They were extremely interested in facts," Mr. Heckman said. "There seemed to be, with the people I dealt with, less of an ideological bias and more of an empirical one. A lot of economists like to feel that the direction of the profession is going that way, too."

Maybe Obama won't be as ideologically rigid as many pundits would have it.

Many economists were cheered in April when, amid higher gasoline prices, Mr. Obama opposed a gas-tax holiday -- an idea supported by Sens. John McCain and Hillary Clinton, who was competing with Sen. Obama for the Democratic nomination. Textbook economics said in response to the tax cut, demand would simply raise gas prices to their previous level, and so the benefit of the cut would flow to energy producers rather than consumers.

No knee-jerk liberal.

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