Advancing a Free Society

Battered but Unbowed

Thursday, April 15, 2010

By Gary S. Becker and John Cassidy

The Chicago School’s economic insights have been severely tested, but Hoover fellow Gary S. Becker insists they still hold.

Gary S. Becker: No. I think the past twelve months have shown that free markets sometimes don’t do a very good job. There’s no question, financial markets in the United States and elsewhere didn’t do a good job over this period of time, but if I take the first proposition of Chicago economics—that free markets generally do a good job—I think that still holds.

If I were running an economy, and I were looking for the best way to run it, I would do what India and China did—move much more to a free-market economy. The second proposition of Chicago economics: that governments don’t do a good job. . . . I don’t think the government did a good job in the run-up to the crisis. Posner has himself criticized Alan Greenspan’s low-interest-rate policy. The SEC [Securities and Exchange Commission] should have done a lot of things it didn’t do. It’s hard to sustain the belief that governments do well.

What I have always learned to be the Chicago view, and taught to be the Chicago view, is that free markets do a good job. They are not perfect, but governments do a worse job. Again, in some cases we need government; it is not an anarchistic position. But in general, governments do a worse job. I haven’t seen any reason to change that other than, yes, we’ve seen another example where free markets didn’t do a good job: they did a bad job. But to me there is no evidence the government did a good job, either, leading up to or during the process.

Continue reading Gary Becker and John Cassidy in The Hoover Digest…