The Chicago School after the crisis of the new millennium

Giuseppe Garofalo and Paolo Fetoni

Quality & Quantity: International Journal of Methodology, 2013, vol. 47, issue 2, 677-711

Abstract: After the self-criticism of Richard Posner (A failure of capitalism. The crisis of ’08 and the descend to depression. Harvard University Press, Cambridge, 2009a and some later papers), a position shared in part by Gary Becker, it is right to ask what exactly remains of the Chicago School, which came into being in the early 1930s with Knight and made a name for itself in the 1980s as the new orthodoxy with Lucas (Reh) and Fama (Emh). The financial crisis has, in this sense, cast the debate between the Saltwater school (the American universities on the coast) and the Freshwater school (the universities near the Great Lakes, including Chicago) in a new light. This article traces the development of the Chicago School, the consolidation of conservative think-tanks (especially the Mont Pelerin Society whose members have included, among others, von Hayek and Friedman) and the more recent positions of the School, including some that are less organic (Diamond, Kashyap, Rajan, Zingales). At the centre of the debate is the question of the failures of the State vs the failures of the market and the role of institutions. On a methodological level the relationship between law and economics (L&E) is also in discussion, which leads to an interesting comparison between Chicago (again Posner, past and present) and Yale (Calabresi). After having described the echoes of the debate across the Atlantic (with particular reference to Italy), it will be asked if the anomalies that can be found in the consolidated paradigm (Reh, Emh, but also L&E) will lead to the abandonment of pre-constituted models in favour of a less rigid theoretical framework (Ike together with Keynes and the Chicagoan Knight, but also to a certain extent, von Hayek) or simply a pause for reflection. Copyright Springer Science+Business Media B.V. 2013

Keywords: Financial crisis; Market; Regulatory institutions and policies (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s11135-011-9539-5

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