“Colander and Freedman argue in this fascinating book that economists began to go wrong when they tore down the firewall between theory and policy—the first scientific and objective, the second judgmental and subjective. Once they forgot that their science does not, or rather cannot, produce clear and unambiguous policy advice, all kinds of mischief followed. Drawing on the history of economic thought as well as contemporary debate, the authors provide an account that is as engaging as it is challenging to professional economists.”—Dani Rodrik, author of Straight Talk on Trade
Where Economics Went Wrong
Chicago's Abandonment of Classical Liberalism
David Colander and Craig Freedman
How modern economics abandoned classical liberalism and lost its way
Milton Friedman once predicted that advances in scientific economics would resolve debates about whether raising the minimum wage is good policy. Decades later, Friedman’s prediction has not come true. In Where Economics Went Wrong, David Colander and Craig Freedman argue that it never will. Why? Because economic policy, when done correctly, is an art and a craft. It is not, and cannot be, a science. The authors explain why classical liberal economists understood this essential difference, why modern economists abandoned it, and why now is the time for the profession to return to its classical liberal roots.
Carefully distinguishing policy from science and theory, classical liberal economists emphasized values and context, treating economic policy analysis as a moral science where a dialogue of sensibilities and judgments allowed for the same scientific basis to arrive at a variety of policy recommendations. Using the University of Chicago—one of the last bastions of classical liberal economics—as a case study, Colander and Freedman examine how both the MIT and Chicago variants of modern economics eschewed classical liberalism in their attempt to make economic policy analysis a science. By examining the way in which the discipline managed to lose its bearings, the authors delve into such issues as the development of welfare economics in relation to economic science, alternative voices within the Chicago School, and exactly how Friedman got it wrong.
Contending that the division between science and prescription needs to be restored, Where Economics Went Wrong makes the case for a more nuanced and self-aware policy analysis by economists.
David Colander is Distinguished College Professor at Middlebury College. His many books include The Making of an Economist, Redux and Complexity and the Art of Public Policy (both Princeton). Craig Freedman is the author of Chicago Fundamentalism and In Search of the Two-Handed Economist.