Sunday, September 13, 2009

Cochrane: Against Krugman's View of Macroeconomics

. Sunday, September 13, 2009

John Cochrane, one of the prominent "freshwater" economists that Krugman assaulted in his screed last week, has responded. (My feeble response to Krugman is here.) As much as anything, it reminds me of Kenneth Rogoff's famous rejoinder to Joseph Stiglitz's hit-piece on the IMF from years ago (which ended with a tart "Other than that, I enjoyed the book" just two sentences after calling for Stiglitz's book to be removed from store shelves).

But Cochrane's retort is much more thorough. He hones in Krugman's caricature of "efficient markets" research, the modern interpretation of Barro-Ricardian equivalence, the fundamental causes of the economic collapse (which Krugman also did not predict), his newfound disdain for mathematics, his newfound preference for political advocacy over economic rigor, and his numerous character assassinations. Moreover, unlike Krugman, he actually bothers to cite research in support of his claims.

I would love to quote from Cochrane's piece at length, but it demands to be read in full: all 4,435 words of it. The text may be downloaded from Cochrane's site or from Economix in the form of a .doc file. Even though I do not fully agree with Cochrane, I truly think this should be required reading for anyone who read Krugman's essay. This is especially true for those who agreed with it but cannot verbalize why. Either way, it should not be taken for granted that Krugman's view of the state of macroeconomics is the only view or even the predominant one.

Here's Cochrane's intro, and then his conclusion, but please read the whole thing:

Imagine this weren’t economics for a moment. Imagine this were a respected scientist turned popular writer, who says, most basically, that everything everyone has done in his field since the mid 1960s is a complete waste of time. Everything that fills its academic journals, is taught in its PhD programs, presented at its conferences, summarized in its graduate textbooks, and rewarded with the accolades a profession can bestow, including multiple Nobel prizes, is totally wrong. Instead, he calls for a return to the eternal verities of a rather convoluted book written in the 1930s, as taught to our author in his undergraduate introductory courses. If a scientist, he might be a global-warming skeptic, an AIDS-HIV disbeliever, a creationist, a stalwart that maybe continents don’t move after all. ...

Krugman wants people to swallow his arguments whole from his authority, without demanding logic, or evidence. Those who disagree with him, alas, are pretty smart and have pretty good arguments if you bother to read them. So, he tries to discredit them with personal attacks.

This is the political sphere, not the intellectual one. Don’t argue with them, swift-boat them. Find some embarrassing quote from an old interview. Well, good luck, Paul. Let’s just not pretend this has anything to do with economics, or actual truth about how the world works or could be made a better place.

Other than that, Cochrane enjoyed the article.


Cochrane: Against Krugman's View of Macroeconomics
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