Economist Milton Friedman's Theories about unfettered markets dominated world governments' thinking for a loong time:
...For half a century, Chicago’s hands-off principles have permeated financial thinking and shaped global markets, earning the university 10 Nobel Memorial Prizes in Economic Sciences starting in 1969, more than double the four each won by Columbia University, Harvard University, Princeton University and the University of California, Berkeley.
Chicago’s laissez-faire imprint underpins everything from U.S. President Ronald Reagan’s 1981 tax cuts and the fall of communism that decade to quantitative investment strategies.
In 1972, Friedman helped persuade U.S. Treasury Secretary George Shultz, former dean of Chicago’s business school, to approve the first financial futures contracts in foreign currencies.
Such derivatives grew more complex after Chicago economists created the mathematical formulas to price them, helping spawn a $683 trillion market that’s proved to be a root of today’s financial system breakdown ...
Friedman, who died in 2006 at age 94, defined the Chicago School in 1974 as he spoke to a board of trustees dinner:
“‘Chicago’ stands for a belief in the efficacy of the free market as a means of organizing resources, for skepticism about government intervention into economic affairs,” he said.
Well, maybe not so much anymore. We're all socialists now.
By the end of November, the government had committed $8.5 trillion, or more than half the value of everything produced in the country in 2007, to save the financial system.
The European Union had ponied up more than $3 trillion to guarantee bank loans and provide capital to lenders. And China had unveiled a $586 billion stimulus plan and its biggest interest-rate cut in 11 years ...
“When Friedman’s Platonic ideas of free-market virtues are put into practice, they have too often generated a systemic orgy of competitive greed -- whose remedies, ironically, entail countermeasures of nationalization,” [said] Marshall Sahlins, an emeritus professor of anthropology ...
Joseph Stiglitz, who won one of Columbia’s economics Nobels, says the approach of Friedman and his followers helped cause today’s turmoil.
“The Chicago School bears the blame for providing a seeming intellectual foundation for the idea that markets are self- adjusting and the best role for government is to do nothing,” says Stiglitz, 65, who received his Nobel in 2001.
University of Texas economist James Galbraith says Friedman’s ideology has run its course. He says hands-off policies were convenient for American capitalists after World War II as they vied with government-favored labor unions at home and Soviet expansion overseas.
“The inability of Friedman’s successors to say anything useful about what’s happening in financial markets today means their influence is finished,” he says ...
The problem, friends and neighbors, isn't market economies. The problem is unregulated market economies that get leveraged to the hilt and built on assets that are insanely inflated in value.
Nine years ago, I used to read financial commentary that said: "It's no problem that these new start up tech firms have a price-earnings ratio of two hundred or five hundred to to one. It's a new paradigm! Everything's different now!"
There were a lot of animation artists, flush with cash from the high-salaried nineties, who believed the commentators and invested accordingly. Which, of course, was ultimately a mistake. The dot-com mania and bubble of 1999 was a close cousin of the tulip bulb mania and bubble of 1637.
More recently, when Las Vegas real estate increased 100% in twelve months, I remember thinking: "This is unsustainable."
Human behavior ... and humans' capacity for self-delusion, doesn't really change a hell of a lot century to century, millennium to millennium.
Good rule of thumb: If it looks too good to be true, if it feels too good to be true, it is too good to be true.