Free To Choose Network | Turmoil & Triumph: The George Shultz Years
Turmoil & Triumph: The George Shultz Years
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Kenneth Dam: Shultz and the Chicago Economics Style
Dam on Chicago Economics
The Chicago Economics tradition in microeconomic (as opposed to macroeconomics, which concerns the economy as a whole -- especially issues like the extent of budget deficits and surpluses) is basically standard microeconomics. I don’t believe that there is any special Chicago spin on microeconomics, the most important part of which is often called simply price theory. If there is any special approach at Chicago, it is that microeconomics should not be viewed as an abstruse subject. All of the major propositions are actually straightforward common sense even though mathematics is often used in teaching it and in textbooks to show that microeconomics is logically rigorous.
Kenneth Dam
What I find special at Chicago – and it is reflected in George Shultz’s way of talking about it – is that since it is mostly just applied common sense, one should be able to articulate the major points in clear language understandable by any educated person. The ability to do so was honed at Chicago around innumerable lunches at the faculty club, the Quadrangle Club, where economists often sat together with academics from other areas, notably law, and to a lesser extent, social sciences such as sociology. So when George Shultz speaks about an economics issue, what he says is very clear, simple, and straightforward. One may disagree, but it is hard to misunderstand him. And that is why he was so persuasive in government. There was no “on the one hand...but on the other hand” type of discourse.
“So when George Shultz speaks about an economics issue, what he says is very clear, simple, and straightforward.”

The reason that many economists seem so complex in their exposition, particularly on television and in Congressional hearings (and hence are hard to follow), is that they try to blend economics with their own ideas about such noneconomic values as fairness, redistribution of income and the like. I personally (and I believe this is true of Shultz himself) do not oppose public policy taking into account these other values. But the Chicago view is that first, it is important to be clear about the economics of an issues and, even more importantly, that it is possible to address the noneconomic values directly. For example, it is far better to redistribute income through the income tax system than through interfering with the price system by such measures as rationing and quantitative import restrictions.

It may be true that the Chicago Economics tradition emphasizes values like economic efficiency more than fairness and other non-economic values in discussing economic policy. But to be effective in Executive Branch economic policy making, it is important to be clear about the economic issues. George Shultz was extraordinarily clear about his views and that was one important reason why he was so effective. Everyone understood what he was saying, and it was hard to disagree with what he said.

Kenneth W. Dam (born 1932) served as Deputy Secretary of the Treasury (the second-highest official in the United States Department of the Treasury) from 2001 to 2003, where he specialized in international economic development. He is currently a senior fellow of the Brookings Institution and professor emeritus and senior lecturer at the University of Chicago Law School. He served as Deputy Secretary of State with George Shultz from 1982-1985. (Together, Dam and Shultz wrote Economic Policy Beyond the Headlines in the early 1970s).