I simultaneously love and hate UChicago! What should I do?

phuriku
Tue, 08 Jul 2014 20:28:21 +0000

Well, you sound like you have a healthy mindset, so good luck to you.

To get into the specifics, yes, those are oft-cited (and good) criticisms of Chicago Economics. (Although it’s interesting that you cite Black and Scholes, since as you probably know, they’re famous for one of the most oft-used options models, taught even in less freshwater-prone schools.) But even if you discount the ideological foundations of Chicago Economics, if you give it a bit of leeway, it has a number of very good applications for the real world.

For instance, sure you can criticize Eugene Fama all day (and trust me, saltwater economists never shut up about him), but if you’ve ever read the work of Benjamin Graham (Buffett’s old instructor, as well as one of the most famous detractors of the EMH), you’d know that ironically, Graham’s main thesis is that value investing works for an elite few who have the resources and intelligence to gather quality information, but that EMH basically holds for everyone else. So can you legitimately say that the EMH, even if invalid, is not greatly useful under certain constraints?

From my own experience, saltwater economists like to pick certain easy targets in the freshwater school and criticize them to no end (Krugman serving as an obvious example). But this discounts all of the amazing contributions that Chicago has made to economics, and it also ignores all of the problems inherent to saltwater economics.

Personally, I work in diplomacy and defense and have no real stake in this argument. However, it always puzzles me why people are so critical of the Chicago school. I think part of it is that Chicago gets so much recognition via Nobels and other prizes, and so a lot of popular literature is aimed against the Chicago school to get more popular support for that movement, whereas Chicago economists rarely see the need to attack their opponents in popular literature. In any case, I think your viewpoints are understandable, but you definitely do need to understand that until you get in-depth with the mathematics and start participating in economic research, it’s hard to ascertain which side is more legitimate.