The politicians who invited George Stigler to a White House dinner after he was awarded a Nobel prize in 1982 were dismayed when Stigler, during a press conference, described the economy as in a depression. His friends were not surprised. Stigler's record of advocating laissez faire policies was matched by a reputation for being a straight-shooter who called them as he saw them. The University of Chicago's "school" of economic thought was renowned for its opposition to activist government policies throughout much of the twentieth century. Tall and lanky George Stigler shared stewardship over this tradition with his short, fellow Nobel-Prize-winning friend, Milton Friedman, for almost 50 years. Friedman is best known for his work in macroeconomics and monetary theory, while Stigler was a pioneer in the study of modern microeconomics. Stigler's research is testimony to the notion that genius often consists of an ability to see old ideas in new ways. In the course of his distinguished career, largely while at the University of Chicago where he received his Ph.D. in 1938, he extended the frontiers of economic analysis in several areas, including industrial organization, the economics of information, the sources and effects of government regulation, and the history of economic thought. A hallmark of his work was rigorous hypothesis testing to ascertain which economic theories seem supported by real world data. Stigler fundamentally disagreed with those who view the market system as inherently defective because few markets conform to the assumptions of pure or perfect competition. Stigler found that industries characterized by monopolistic competition or oligopoly act much more competitively, with respect to price, than most models of imperfect competition predict. In particular, he rejected the sticky prices assumed in the kinked-demand curve model. Empirical work that found no relationship between price responsiveness and market structure led him to urge abandonment of kinked demand models. Stigler was among the first to consider information as an economic good that consumers and firms alike pursue until its marginal benefits and marginal costs are equal. Stigler's seminal 1961 article fueled an explosion of research effort that helped launch the economics of information as a major and growing subdiscipline of economics. He was also the first major modern economist to perceive that regulation is often instigated by the regulated. His extended studies of antitrust policies and regulation made him extremely skeptical that much government economic activity is in the public interest. Another focus of his interest was the sociology of economics as a field of study. His essays on the development of economic theory and methodology are a staple of economists' reading lists. When Stigler challenged his grandson to name Adam Smith's best friend, the youngster is said to have responded, "You, Grandpa." (Most likely correct answer: David Hume.) Nevertheless, the boy's answer accurately reflected George Stigler's lasting enthusiasm for the ideas of the eighteenth-century Scottish moral philosopher and economist. Unlike many economists of his generation and stature, George Stigler largely eschewed mathematics. His literary approach to economics has been much lauded for its clarity, polish and the sheer beauty of his use of language. This may be due in no small part to the fact that Stigler was always an avid reader and described himself as a diligent book collector. He even joked that he passed this 'gene' on to his progeny, particularly one of his sons, a statistician, and a grandson, who began collecting comic books at a very young age! Although he has worked extensively in several fields of economics, Stigler believed his most important work is in the area of information theory - the costs, particularly to the consumer, of gathering information. He maintained that differences in prices for the same product exist, in part, because there is a cost to the consumer of acquiring knowledge about price differences. Comparison shopping takes time and effort which has a monetary value for the individual. A brilliant exploration of this theory is presented in his 1961 article "Economics of Information". He also applied information theory to labor markets to explain differences in wages, and to explain the duration of unemployment. In his later years, Stigler worked extensively in the area of economic regulation. His "capture theory" suggested that regulations seldom protect the consumer as intended, but rather industries, by inhibiting new competition. Among other things, Stigler viewed antitrust action as largely misdirected, in part because he foresaw the growing role of international trade in significantly weakening the market power possessed by firms in highly-concentrated domestic industries. Much of the deregulation of industry favored by the thrust of his analysis quickly began to be implemented, beginning with the administration of President Carter and continuing to this day. George Stigler was awarded the Nobel Prize in Economics in 1982 "for his seminal studies of industrial structure, functioning of markets and causes and effects of public regulation." He received numerous honorary degrees and was a former President of both the American Economics Association and the History of Economics Society. Stigler was an acknowledged authority on not only the work of early economists, but on their lives as well. He could easily have won a lot of cash in this category if he had ever appeared on Jeopardy! |
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Author:
Ralph Byrns |
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Economics
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