I spent the 2007-08 year as a first year student in a PhD Finance program at a Top University. All the classes I took were in the econ department for the first year; I was basically a first-year econ student.

The financial crisis was unfolding while I was there; one might expect that it would be a very interesting time to be in the graduate econ classroom. I can briefly summarize for you how the financial crisis was discussed, both inside and outside the class room: .

Nothing at all. The most significant economic and financial event in decades was happening out in the Real World, but it didn’t penetrate the bubble of Academia. Rational expectations and normal distributions were still taught as gospel truth, and woe upon the student (me) who questioned the orthodoxy.

I still remember a professor advising me that critical thinking is a detriment to learning economics.

I still remember a professor scolding me that it would be inappropriate to teach anything realistic in his classroom.

I still remember my advisor yelling at me “Have an open mind! Stop questioning things!” after I questioned the relevance of theory in the face of recent events.

I am no longer a PhD student, largely because I couldn’t accept the fact that academic economists I met have no interest in understanding how an actual economy actually works; they just enjoy irrelevant and overly-complicated math models.

On a side note, how did you end up moving from math and physics to economics and investments? I am an electrical engineer with a strong interest in economics and investments; I thought I would really enjoy the PhD program in finance. But since that did not work out as I planned, I am not sure how I could still act on that interest, either within my current job, or doing something new. I am curious to learn more about how you transitioned from one career to another.

Reuters. Chicago, Nov. 17, 2009. The University of Chicago announced today it is outsourcing its Economics Department research and teaching activities to the Indian Institute of Technology Bombay beginning in the Fall of 2011.

“We fully intend to remain a strong bastion of market-centered economic thinking. Our commitment to the students and the economics program is inviolable,” said President Robert Zimmer in a statement released today. “Students enrolled in economics will not see any diminution in the caliber and quality of teaching,”

“Rather, the same high quality coursework will be delivered via state of the art conferencing centers on campus and the Internet.”

“This is a big opportunity for us to leverage our faculty strengths and influence mainstream economic thought,” said K. Jain, head of the IIT Bombay Shailesh J. Mehta School of Management.

A Chicago University spokesman added that students will receive a University of Chicago degree with an IIT superscript for their major recognition (Economics UChIIT).

The move was prompted by the realization that IIT Bombay had a major comparative advantage over the University of Chicago in delivering high quality economic education and research at lower cost. “Our professors can earn much more money in consulting than in teaching. Once we recognized that, and given the technological capabilities of the Internet, we had to make the move,” said President Zimmer.

“IIT is one of the most rigorous institutions of higher learning in the world with an outstanding faculty in economics and a track record of turning out quality economists, much like the University of Chicago. And their teachers are paid one-third as much as U.S. professors.”

The savings will be significant to the University, which a spokesman said will help to moderate the growth in tuition costs.

Non-tenured faculty will be let go at the end of the 2011 spring term. Tenured professors are being offered buy-outs. There has been some grumbling among the younger faculty; and one senior professor was heard to say, “Gee, I never looked at it that way.”

Covey therefore argues that effectiveness is achieved by aligning oneself to what he calls “true north” principles of a character ethic that he believes to be universal and timeless”. Such as he argues also in his earlier book, “The Divine Center” in which he explains that has discovered how to communicate Mormon truths to non-Mormons by simply changing his vocabulary. [1]

Nevermind that our country’s early leaders had as much political backstabbing, duels, lying about each other, sex outside of their marriages, and such, as do our current politicians. He must have gotten this feedback repeatedly, since the latest version of the book just describes that, “during the 150 years or so that preceded the 1920′s, the literature on success was more character oriented. It emphasized the deeper principles and foundations of success.” (quote approximate)

Nothing against the concept of the principles Covey tries to sway people towards, in theory. But in practice, if you follow his principles religiously in the modern corporations, the gameplayers, backstabbers, and credit-takers are going to eat you for lunch. It’s much more effective to treat people how they treat you, with a bias towards treating people how you would like to be treated, rather than following Covey’s advice blindly.

Yeah, this “assumption” and “therefore” have annoyed me for years.

[1] Aplogetics index, http://www.apologeticsindex.org/c13.html

What he was really telling me was that he knew that I knew what I was supposed to say and it would go better for me if I always said it. So, I did my arguing about EMH at the pub, but always adhered to it on exams from that point on. That was the way to succeed at Chicago.

Well, because the nanny state told them to and they are stuck in flash backs from being five years old and can’t stand to comply because they’d hate themselves even more if they did? Being stupid on your own terms has short term ego rewards that trump all else, and are ergo “rational” for some dimension of rational yet to be defined.

I’m not defending the Chicago School, by any means, but I would argue that people THINK they are being rational when they buy something. In truth they are acting on impulse that is later “rationalized” to their own satisfaction and if that fails they suffer buyer’s remorse. Where economists fall down is assuming they can understand these myriad actors’ rationality let along represent their emotional impulses in a model.

curbyourrisk: “…someone who believes in the Chicago School, walk don’t run to the registrar and switch to a different econ professor. ” I think you mean……RUN don’t WALK….

Unless you are carrying scissors . . .

You all are arguing the wrong point and missing the “Big Picture.” The point isn’t whether or not humans are rational beings, it is that economic markets are COMPLEX ADAPTIVE SYSTEMS, and therefore cannot be accurately modeled based on limited assumptions, such as “all humans in aggregate will tend toward rational behavior.” Therefore, of course the Chicago school is wrong in their models. . . but SO ARE ALL THE OTHER SCHOOLS MODELS.” There can never be a correct MODEL, because YOU CAN”T MODEL A COMPLEX ADAPTIVE SYSTEM. There can only be a “LESS INCORRECT” approximation. Read the work of Beniot Mandelbrot for a better explanation of this: http://www.amazon.com/Misbehavior-Markets-Fractal-Financial-Turbulence/dp/0465043577/ref=tmm_pap_title_0

And neither the Chicago, Keynesian, nor Austrian Schools incorporates fraud into their theory and I think we can all agree that there has been and continues to be serious flaws occurring on a daily basis in our economy, whether they are prosecuted or not. So, yes, you can earn extra-normal returns by pushing the ethical and legal bounds. Cough. SAC. Cough.

But what is your point? If your point is that we don’t have perfectly efficient markets I would have to agree. However I would not that as the markets become more free, and the institutional barriers that create inefficiency fall, we approach the EMH assumption even if we never really get there. And if you don’t buy that then what is your alternative? A more regulated market will be more efficient than a market with less but smarter regulation.

Let me guess, you would be the regulator who would make everything efficient? Or would it be Barney Frank and Chris Dodd who, along with a few Republican clowns, oversaw the completely benign and innocent Fannie Mae?