BOOK REVIEW: Chicagonomics, part 2

Continuing with my review of Lanny Ebenstein’s new book, Chicagonomics, I have some preliminary thoughts from the very brief amount of the book I’ve had time to read. Before I begin, let me say that the subtitle of the book could more accurately than its current heading be titled “The Evolution of Chicago Egalitarianism.”

  1. Ebenstein is obsessed with income inequality. He writes that he desires to see a “greater economic equality in the distribution of income and wealth” by restoring the high tax rates of the 1950s, “when rates of progressive income taxation were highest.” Later in the book (page 196) he asserts that income inequality is the greatest problem we face today in the United States.
  2. The introductory chapter is more of an apologia for egalitarianism than it is for free markets and voluntary exchange. Instead of extolling the virtues of capitalism, he writes that “As historically understood at the University of Chicago, classical liberalism and capitalism require a strong egalitarian element achieved through progressive income and estate taxation.” Any of the several impressive snippets of praise for free markets and voluntary exchange are totally drowned out by the incessant calls for more egalitarianism.
  3. Ebenstein grossly mischaracterizes the libertarian approach to income inequality. Here are three passages to illustrate my point [emphasis added]:

    Page 9: “The classical liberal economic ideal was not and is not a society divided into a very few, ultra-wealthy makers and creators and a great mass of impoverished workers and indigents, though this may rapidly be approaching the American reality for tens of millions—and, indeed, this reality is rapidly attaining the status of an ideal for many contemporary libertarian writers and thinkers.”

    Page 10: “…contemporary libertarians and many conservatives seek inequality as among their highest practical goals.”

    Page 10-11: He claims that our (libertarians) “opinion of the appropriate and optimal society is one in which income and wealth are very unequally received and held, such as, for example, the contemporary United States.” Then he says that our view “on the desirability of inequality is not a part of the classical liberal tradition.”

    I’d urge any skeptic of libertarianism to spend a few weeks perusing the libertarian blogosphere and libertarian books. He or she will notice that we do not speak in such terms as an “appropriate and optimal society” or eagerly await the day when a few wealthy overlords rule over the rest of us puny proletarians. He or she also will never see greater degrees of income inequality expressed as among our “highest practical goals.” Ebenstein so clearly mischaracterized our views that he almost strikes me as somebody who doesn’t really understand our views, but nevertheless invents strawmen to refute, to make our side look like intellectual Neanderthals.

  4. Finally, to get a grasp of Ebenstein’s outlook of the Chicago School, consider the names he mentions as carrying on the legacy of traditional, classical liberalism (pages 17-18). Among them are Joseph Stiglitz, Paul Krugman, Larry Summers, Robert Reich, Ben Bernanke, and Janet Yellen. It’d probably be redundant for me to note that Thomas Sowell didn’t cut the list.
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I Don’t Need (or Want) Economists Thinking About Ways to Make me Happier

I’ve just begun reading Lanny Ebenstein’s new book, Chicagonomics: The Evolution of Chicago Free Market Economics.

After briefly describing utility maximization theory (the view that individuals act to achieve their own greatest happiness), Ebenstein states on page 11:

“…Chicago economists have typically advocated public policies that are intended to result in the highest standard of living possible for all people—not a small group among them. The goal of free market economists from Smith to the present is to maximize everyone’s happiness…” [Emphasis added]

(Note: Ebenstein uses this passage and the concept of utility maximization theory to justify his obsession with egalitarian measures—high progressive taxation and income redistribution—to lessen income inequality.)

First of all, we must address to ourselves the fact that a policy’s “intentions” are not the same thing as (and are often the opposite of) its results, as Milton Friedman eloquently pointed out in a video which Ebenstein should be advised to watch.

Second, is the final sentence of that passage not a load of hogwash? The idea that you and I want economists (let alone even believe they’re informed enough) to spend their days in ivory towers conjuring up ways to maximize our own happiness is just creepy! Nor is it necessary. Consider that the iPhone wasn’t invented because some economists were concerned with our welfare, but the Americans with Disabilities Act of 1990 was the direct result of economists and politicians acting to “maximize the utility” of a certain demographic. How did that turn out for the disabled, do-gooder economists?

The best thing an economist with Ebenstein’s mindset could do is to immediately retire from the profession. It’s enough to allow to private individuals and profit seeking enterprises the discretion over “maximizing” their own “utility.”

If one is truly a free market economist, he ought to spend his days improving his ability to combat the fallacies and half-truths presented by interest groups who lobby government officials for plausible sounding policies which in the end will result in unintended consequences.

bastiat