Must-Read: Paul Romer: On George Stigler

Must-Read: Paul Romer: On George Stigler: “The Great Depression was a traumatic experience for both Solow and Stigler…

…They reacted very differently. For Solow, the human cost of mass unemployment was so high that to him, it seemed obvious that the government had to do something to bring unemployment down quickly in the wake of a recession. Stigler saw the many harmful and ineffective things that the government tried during the 1930s (including price floors and official support for cartels) and resolved that the guide to government policy must be ‘do no harm.’ Stigler wanted halt to progress in economic theory because he feared that it would lead to more theories like those of Keynes and Chamberlin (who provided the foundation for Dixit and Stiglitz). For him, there was apparently too much risk that such theories might lend political support for government policies that should not be tried.

Under his division of labor with Milton Friedman, Friedman took on Keynes and Stigler took on Chamberlin. Marshall, they agreed, was safe. They turned Chicago in the last bastion of opposition to the Samuelson [mathematical general-equilibrium] program and thereby prolonged for decades the confusion that Marshall had spawned. For Stigler, the logical implication of ‘do no harm’ was ‘do nothing at all,’ so what good could come from the Samuelson program anyway? Samuelson, like Lucas, must have found it infuriating to have his life’s work dismissed by someone who already knew all the policy answers…

August 9, 2015

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