Over the past thirty years a series of Administrations and Congress have dismantled a system of public and private rules, developed over a century and a half of intermittent economic crises, that were intended to safeguard the American economy. These rules made transactions more transparent and our economy less vulnerable to the mistakes of supersized corporations. The faith that led to the abandonment of these rules has a name: Chicago School economics. That faith was the primary source of support for the creation of the least regulated parts of our financial sector.
The Chicago School’s basic assumptions about human nature and the intersection of economic and political life were not doctrinaire at the start, and they may have been in that day a useful warning against then-fashionable tendencies toward planned economies, the hubris of social engineering and assumptions of ultimate convergence between socialist and capitalist economies. But ironically, as economics asserted itself as an independent science, divorced from its partner, political philosophy, it became more politically entangled than ever...Once it abandoned its political concerns with economic power, Chicago theory, with its axioms of profit maximization, perfect information and self-correcting markets, had no advice to limit the downside risks of economic and financial disaster. ...Doctrine supplanted healthy intellectual doubt, theoretical purity trumped common sense and historical memory, acolytes took over from masters, and a different kind of irrational exuberance was the result. We’re all now paying the price.
---Kenneth M. Davidson, The American Interest, 11/09 ---Highly Recommended.
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