Crain's Chicago Business speculates that “failure of the free market” and “deregulation” will harm the reputation of the University of Chicago's School of Economics and of any influenced by Milton Friedman.
One market meltdown later, the department is suddenly on the outs. The collapse of lightly regulated financial institutions and the most extensive government intervention in the economy since the New Deal have dealt a serious blow to the U of C's influence on economic policy and its standing in academic circles.
Many critics blame the Hyde Park institution's free-market theories for the collapse and see stricter regulation, abhorrent to Chicago School thinkers, as the way forward.
Are they joking? Clearly we have not had the “unfettered free markets” that the article blames for the meltdown, and the financial institutions can hardly be called “lightly regulated”. Furthermore, despite the influence of Milton Friedman, almost no deregulation of financial markets occurred, but over-regulation certainly did.
In fact, had the advice of Milton Friedman and the Chicago School been adhered to, the Federal Reserve would have been replaced with a computer, and would not have been able to lower and raise interest rates to manipulate the economy (which contributed both a housing boom and then to the rise in mortgage defaults). Government-sponsored enterprises Freddie Mac and Fannie Mae would have been privatized years ago, and thus would not have been pressured by the federal government to buy up subprime mortgages (with the implicit backing of taxpayers) to encourage homeownership. Certainly the Community Reinvestment Act would not have been used to force lenders to issue subprime loans.
Milton Friedman won the Nobel Prize, in part, for documenting how government intervention caused (or at least worsened and prolonged) the Great Depression. It won't be long before another economist earns the award for demonstrating the role of government in creating the mortgage crisis and I expect how the bailout(s) resulted only in worsening our economy.