Good Scholarship Is Worth Honoring

By L. Gordon Crovitz
Monday, July 21, 2008

The University of Chicago recently announced it will create a new institute to add to its outsized reputation in economics, business and law. This became controversial because of the name: the Milton Friedman Institute. Some 100 members of the faculty last month wrote the university president to object that this would imply that the Chicago faculty "lacks intellectual and ideological diversity."

Any implication that Chicago is staffed mostly by conservatives and libertarians is amusing -- after all, one Barack Obama taught law there until he became otherwise engaged. But the larger point is that what Friedman stood for, more than any particular idea, was the importance of doing the hard work of research. This sounds like a useful thing for academia in a world with hard policy problems to address, especially in this information-focused era when we expect right answers and wrong answers and to know which is which, preferably ahead of time.

Friedman, the onetime Keynesian whose research turned him into a monetarist, defined the Chicago School of Economics as "an approach that insists on the empirical testing of theoretical generalizations and that rejects alike facts without theory and theory without facts." What had been a softer social science could be transformed to more useful knowledge, whatever ideology might be supported by the outcome. "Chicago has regarded economics as a serious subject that has something to do with the real world," he wrote. "It has considered economics a positive science, a method of analysis which has broad applications to many topics."

The work of serious economics is hardly done, two years after Friedman's death. At the Chicago business school hangs a long row of framed photographs of the 25 Nobel Prize winners in economics with affiliations to the university -- with wall space ostentatiously left to make room for many more. Yet there's also the occasional humble nod that theory, such as the idea of man as rational economic actor, can overstate reality. A favorite campus joke describes an economics student running up to Friedman and fellow economist George Stigler to ask why they had stepped over a $100 bill lying on the sidewalk. Their reply: "Don't be foolish. If there had been a $100 bill, someone would have picked it up."

One result of more than 50 years of the Chicago School is that we no longer believe there's any such thing as a free lunch, even though policy makers sometimes pretend there is. Indeed, wishful thinking upended from just this past week's headlines: Federal programs to subsidize homeownership do indeed eventually cause problems. Bailing out banks does create moral hazard and the likelihood of more bailouts. And as Friedman might have written on these pages were he still alive, going after short sellers or oil traders may be politically cathartic, but it also makes information more scarce and markets less efficient.

In other words, the Friedman approach is still needed. Despite this tempest on the Midway, U of C President Robert Zimmer shows no sign of slowing down the plan to fund the $200 million institute. It will focus on interdisciplinary analysis, with the topics to be studied including the Friedman favorite of monetary and tax policy ("This research features both the construction of dynamic stochastic equilibrium models rich enough to pose interesting macroeconomic policy problems and a formal statement of how the private sector interacts with a government"); the relationship between decentralized markets for credit and insurance; and "how the quality of government institutions influences economic growth." Note to well-heeled Wall Street Journal readers: Donors at the $1 million mark can join the Milton Friedman Society and attend workshops and seminars.

Perhaps because of its focus on empirical research, Chicago is unusual among campuses in trying to keep itself apolitical, preferring nonpartisan scholarship. When I was an undergraduate there in the late 1970s, there was a big to-do when a faculty award was given to Robert McNamara for his work on world peace. Liberals were outraged because of his role in the Vietnam War, and conservatives objected because of his work at the World Bank. The result was a consensus that nonscholars shouldn't get awards in the name of the university.

Even royals. The mayor of Chicago once asked the president of the university to give the visiting queen of England an honorary degree. "We're happy to consider it," was the reputed reply. "Please send copies of her scholarly work."

The lesson of the Friedman Institute, even before it opens, is that we could use more forceful theories from academia, so long as these are backed up by real research and not by posturing. This is how good scholarship is done by people of all political stripes and how useful information is created. More than 90% of the Chicago faculty did not sign the letter objecting to the institute, perhaps a broad recognition that everyone on campus, Friedman followers or not, should be free to choose.