Fama on the Financial Crisis

http://www.futureofcapitalism.com/2010/08/fama-on-the-financial-crisis

The Manhattan Institute's City Journal has an article headlined "The Free-Marketeers Strike Back" by Guy Sorman interviewing what he describes as a bunch of free-market-oriented economists — the University of Chicago's Eugene Fama, Luigi Zingales, and John Cochrane, Columbia's Charles Calomiris, Rama Cont, and Pierre-André Chiappori, Princeton's José Scheinkman — about the financial crisis:

What has Fama learned from the crisis, then? "I learned a lot about government overreactions but not much about recessions," he tells me. Confronted with a sharp economic downturn, governments face political pressure to act; stimulus spending and other state interventions seem sensible, even when the history of past crises suggests otherwise. Worse, the new public debt and regulations then hobble economic recovery. Rebounding from the post-2007 recession would have been quicker, Fama believes, if the government had mostly let free markets clean up the mess, reestablish true prices, and select the enterprises able to survive.

Not all of the recommendations of the economists interviewed will fit everyone's definition of "free market," and the article mistakenly places John Taylor at Chicago rather than Stanford (now corrected). But it's worth a look for those interested in this sort of thing.

by Ira Stoll  |  Aug 16, 2010 at 10:08 am Related Topics:  Education, Non-Profits, Stimulus receive the latest by email: subscribe to the free futureofcapitalism.com mailing list