One Divides into Two

There's a great line in Michael Lewis's wonderful and much-cited piece on the End of the Wall Street. As he describes what is happening to Wall Street's investment banks, a hedge fund manager that saw this housing bust coming and bet accordingly explains it this way

"These guys are only beginning to understand how fucked they are. It’s like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: ‘Holy shit, I’m wrong!’ 

I had to look up Scholasticism. But I think the point is true in a broader sense as well. Autoworker turned business writer John Lippert explains that the United States' recent conversion to socialism isn't particularly popular at the University of Chicago. This is a little like saying, a Red Sox banner isn't particularly popular at Yankee Stadium. It's not surprising that people who believe in pure free markets (whatever those are) would decry what amounts to more than $11.5 trillion in loan guarantees and other interventions worldwide over the past few months. Lippert's piece is most interesting when he starts addressing the ways economists are processing the changing landscape. Given the proliferation of "econo-blogs," it will be possible to get a good view at the sort of creative destruction this current crisis brings to the profession.

It's pretty clear that all of these philosophies contain their own internal contradiction. Marx's theoretical "Dictatorship of the proletariat," was, in practice, a dictatorship of the governing cadres. Marxism failed as a governing philosophy. But Marx's analysis of capitalism still holds up pretty well 150 years later. And most people who believe in mixed economies have a pretty realistic view of what can and can't be accomplished through intervention. The Chicagoists have never confronted their own contradictions. In theory, equating free markets with free people sounds good. Some have already made a convincing case that in practice it hasn't quite worked that way.

Ultimately, Marx saw cutthroat capitalism as one cause of economic crises (although in his theory, crisis is endemic to the system). Chicago ultimately sees that same brand of capitalism as the solution to problems. In the marketplace of ideas, Marx (minus the name) seems to be trouncing Chicago in explaining our current economic unpleasantness. It will be interesting to see where this argument goes, especially without Milton Friedman alive to make his own case. Perhaps there are people out there in blogland who would do it on this blog.

Ultimately, my point is this: Chicagoists may claim their beliefs are laws of nature, true and immutable. Frankly, so do the Marxists. What works on paper doesn't work in practicality. What I'm asking is I'm listening. But isn't it just as likely that a philosophy formed as an intellectual response to communism would overcorrect in the other direction?