Although it is incredibly likely that I could be mis-interpreting the article – I’m willing to accept that is a possibility 🙂

“the only critique I have of chicago is the failure to accept that a market failure has occurred. Similarly though, neo-classical may be too quick to assume the result is because of market failure, rather than something else as proposed by chicago economists.”

I completely agree. Ultimately, each specific school invokes different value judgments which may or may not be valid in different surroundings. The good thing about the general economic framework is that it provides a setup that makes these judgments transparent.

the only critique I have of chicago is the failure to accept that a market failure has occurred. Similarly though, neo-classical may be too quick to assume the result is because of market failure, rather than something else as proposed by chicago economists.

A good post though, thank you for clarifying the argument.

Indeed, the Chicago school often explicitly places a low weight on the existence of a market failure – and I agree that is a failure on their part (at least given my own value judgements 😉 )

But as I said “I feel that the piece mixes up its attack on the conclusions of the Austrian and Chicago school with the general neo-classical method – which is, in itself, closer to value free and objective”

The attack on Chicago seemed to branch out and attack the tautological nature of building a framework, which is a fundamental part of neo-classical economics. I felt that in this sense the attack became misguided.

I am all for attacking the value judgments made by other economists – and I can understand the irritation associated with the fact that many economists, of any creed, will hide value judgments. But by painting the attack so broadly (instead of focusing on the value judgments where the Chicago school deviates from more general economic thought) the piece appeared to attack the entire method – something I wanted to clear up here.

But isn’t that the whole point of the Chicago School. Most Chicago theories justify every market situation as not a market failure but in fact the optimal position. For instance the theory of contestable markets allows for natural monopolies to be maintained. Even if there is a true market failure and Chicago Economist would say the market is contestable and therefore not a market failure. Neo-classical would assume that there is a market failure and some sort of intervention would result in a higer overall total welfare.

I may be wrong but I thought that is the fundamental difference between the two schools of thought. Other than that they are the same, but Chicago in practice denies taht market failures occur.

I completely agree. What I was trying to state in an offhand way is that any determination of choice needs to understand how the structure of the “game” is partially determined endogenously. I am not trying to say that government mystically knows ways pareto-optimal ways of changing the structure of society – if it came off that way then that is my mistake 🙂