Here is an interesting article at Bloomberg looks at the Chicago school of economics: Friedman Would Be Roiled as Chicago Disciples Rue Repudiation by John Lippert
By the end of November, the government had committed $8.5 trillion, or more than half the value of everything produced in the country in 2007, to save the financial system.
Robert Lucas, a Chicago economist who won a Nobel in 1995 for a theory that argued against governments trying to fine-tune consumer demand, says deregulation may have gone too far. Depression-era laws that separated commercial and investment banks helped depositors decide if they wanted secure accounts or riskier investments. Today, without these distinctions, people can’t be sure if their investments, or those of their customers, are safe.
“I’m changing my views on bank regulation every week,” Lucas, 71, says. “It was an area I saw as under control. Now I don’t believe that.” Lucas says he voted for Obama, the only Democrat besides Bill Clinton he’d supported in 44 years. He concluded the candidate was comfortable talking with professional economists.
“The big event of the last 20 years is the success of free markets in India and China,” says McCloskey via telephone from South Africa, where she’s a visiting professor at the University of the Free State in Bloemfontein. “This is more important than any financial crisis and makes it really hard to argue for a return to central planning.”
I believe capitalism is the best system for economic development. Unfortunately, as I have written before, too many decision makers don’t have the slightest clue about economics. They accept simplistic views just like scientifically illiterate people accept simplistic claims that have no merit.
The basics are pretty easy. You want to use the market to guide the economy. You need to regulate in those areas the market alone is know to be weak (negative externalities – including pollution, risks to the public…) anti-market behavior (large players controlling markets for their own benefit, large players paying off politicians for benefits…) and systemic risks (“too big to fail“…). And practical consideration is more important that ideological purity.
One of the most important consistent failures is the continued favoring of large entities that pay politicians large amounts of money. The continued creation of huge organizations that are anti-competitive by their nature and create systemic economic risk have not economic justification. The role of the government should be to enforce competitive markets not allow huge competitors to buyout other huge competitors so that they can further distort the market.
Related: Ignorance of Capitalism – Misuse of Statistics, Mania in Financial Markets – Greenspan Says He Was Wrong On Regulation – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren – Treasury Now (1987) Favors Creation of Huge Banks