CHICAGONOMICS
The Evolution of Chicago Free Market Economics
Lanny Ebenstein
St Martin's Press
278 (Illustrated) pages; $29.99
ECONOMICS RULES
The Rights and Wrongs of the Dismal Science
Dani Rodrik
W W Norton & Company
253 pages; $27.95
He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence and vanity" - to help the poor.
Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible hand" and the icon of laissez-faire economics today. Smith's modern reputation is a caricature. He was a giant of the Enlightenment in large part because he was a careful and nuanced thinker. He certainly believed that a market economy was a powerful force for good. Smith was a classical liberal, in the European sense of the word, who emphasised the essential equality among human beings.
Lanny Ebenstein's mission, in Chicagonomics, is to rescue not only Smith from his caricature but also some of Smith's modern-day acolytes: the economists who built the so-called Chicago school of economics, chief among them Milton Friedman. From their home base at the University of Chicago, these economists became influential around the world.
As the list of their proteges makes clear, Friedman and his allies were politically conservative, pushing against state control of industry much as Smith had. But Mr Ebenstein argues that the message of the Chicago school has nonetheless been perverted in recent years. Many members of the Chicago school subscribed to "classical liberalism," in Mr Ebenstein's preferred term, rather than "contemporary libertarianism." Classical liberalism manages to grasp two different ideas: The state's economic role can - and often has - become too large, but that does not mean its role should be as small as possible.
Mr Ebenstein, the son of a political scientist who taught briefly at the University of Chicago, has written 10 books on economic and political history, including biographies of Friedman and Friedrich Hayek. With this book, he joins a group of detractors of modern-day American conservatism who are sympathetic to many of the ideas of conservatism but harshly critical of how it is now practiced.
The radicalisation and nihilism of much of modern American conservatism is worrisome for many reasons, not least the important role that actual conservatism has played in recent decades and could play today.
Dani Rodrik, a Harvard economics professor, has written a much less political book than Mr Ebenstein has, titled Economics Rules, in which he sets out to explain the discipline to outsiders (and does a nice job). Yet in surveying the larger "rights and wrongs" of economics, to quote his subtitle, Mr Rodrik has diagnosed the central mistake that contemporary libertarians have made: They have conflated ideas that often make sense with those that always make sense.
Some of this confusion is deliberate. By pushing for less government, regardless of the situation, contemporary libertarians act as a kind of lobbyist working on behalf of the affluent. But not all of the analytical errors of libertarianism are so cynical. Some stem from the honest intellectual mistake of confusing a good idea with the good idea. Because Mr Rodrik's focus is economics, he frames this mistake in terms of theoretical models, which are a central tool of both social science and natural science. Mr Rodrik compares them, somewhat impishly, to fables, but he means the comparison as a compliment to both.
"What are economic models?" he asks. "The easiest way to understand them is as simplifications designed to show how specific mechanisms work by isolating them from other, confounding effects. A model focuses on particular causes and seeks to show how they work their effects through the system."
The trouble comes when economists - and the rest of us - try to make such a lesson universal. Mr Rodrik writes: "The possibilities of social life are too diverse to be squeezed into unique frameworks."
That last point has a particular relevance to modern American politics, and to the problems Mr Ebenstein describes. While all political ideologies (not to mention all human beings) are susceptible to overlearning a lesson, the damages from that mistake come mostly from the right half of the spectrum in the United States today. The political right has spent five years wrongly predicting hyperinflation and, in the process, kept the federal government from doing more to combat unemployment. There are similar stories about climate policy, tax policy, health care and even voting rights and voter fraud.
Reducing complex issues to their essence is unavoidable. The alternative is an often paralysing level of detail.
© The New York Times News Service 2015
