April 14, 2009

Economics conference unites Keynes and Friedman supporters

Economists of all nationalities and economic philosophies came together at the U of C’s Conference on the Financial Crisis last week to grapple with the causes of the economic downturn and to debate its implications for the future of the free market system.

The conference consisted of four two-hour panel discussions featuring speakers from sociology, law, history, business, and economics departments at universities around the world.

“As we all know, the American economy in particular faces challenges in a combination not seen since the Great Depression,” said David Bholat, conference coordinator and lecturer in the Social Sciences core, in his welcoming speech. “But these immediate issues should not obscure us from seeing the far reaching problems with a society where, in the opinion of some, the best way to rob a bank is to manage one.”

The conference addressed the implications of this financial crisis on national culture, domestic policy, and international relations. The panelists argued over the idea that today’s crisis may not be a product of defects within a functional economic system, but rather the result of an outdated and flawed system instead.

“It is a pleasure to be quoting Keynes here at the University of Chicago, home of so much inspired nonsense,” said panelist James Galbraith, a professor of government at the University of Texas at Austin, during the final panel on “Reimagining the Economy.” Quoting Keynes, Galbraith compared classical economists to mathematicians using Euclidean geometry in a non-Euclidean world.

“We are going to have to restructure the financial sector,” Galbraith said, “Something that cannot be managed and cannot be regulated is intrinsically dangerous.”

Galbraith’s criticism did not go unchallenged by more traditional Chicago free market economists. Eugene Fama, a finance professor at Chicago Booth, sat on the same panel, and argued that the problem with the economy lies in too much government involvement.

“If the government allows corporations to fail then no further regulation becomes necessary,” Fama said. “I would prefer the government stays out of the way.”

The event was organized by the University’s Council on Advanced Studies in the Humanities and Social Sciences. Other panels addressed “Sources of the Financial Crisis,” “Financial Crisis in Historical Perspective,” and “Global Ramifications.”