Live from La Farine: If You Had Told Me Twenty Years Ago That the People the Wall Street Journal Put on Its Op-Ed Page Would Only Get Less Hinged as Time Passed...
I would not have believed you. But is is true.
And so I gotta ask: Does John Cochrane have no friends? It is intervention time here: Cochrane is doing himself and his reputation no good by this.
He ought to simply say that he was clearly underbriefed back in 2007-9 and said some stupid things, that he recognizes that the world has evolved since 2007 in ways strikingly inconsistent with the beliefs he had then, apologize, and go back to doing what he does (or perhaps used to appear to do) well, asset pricing, and do that well--if he still can).
His friends need to tell him this.
Frances Coppola is not his friend:
: The Gullible Economist: "I think John Cochrane has lost his marbles...
..has written one of the worst op-eds I have ever seen... quotes George Osborne as an authority on.... Keynesian economics. You couldn't make it up. Cullen fisked about half the article but gave up in disgust when he encountered this little gem:
By Keynesian logic, fraud is good; thieves have notoriously high marginal propensities to consume.
Noah... has a stronger stomach, read all of it... and summed it up in one word. But not being British, both Cullen and Noah missed the sheer idiocy of....
With the 2013 sequester, Keynesians warned that reduced spending and the end of 99-week unemployment benefits would drive the economy back to recession. Instead, unemployment came down faster than expected, and growth returned, albeit modestly. The story is similar in the U.K.
Oh no it isn't.... The UK and the US don't look very similar... do they?... The effect of the sequester is clearly visible on the US line. What had been rather good GDP growth suddenly fell. So much for Cochrane's claim that austerity caused "modest" growth to return.... The UK was recovering nicely until towards the end of 2010, when it was hit by some kind of shock that clobbered both growth and employment. It did not start to recover from this second shock until 2013.
There are a number of theories.... Monetary tightening... oil price shocks, and the crisis in the Eurozone.... And... fiscal consolidation.... GDP flattened and unemployment rose in the UK as a direct consequence of fiscal consolidation by both Labour and Coalition governments. Yes, a DIRECT consequence.... Growth finally returned at the beginning of 2013. Exactly why is unclear.... The Chancellor's 2012 Autumn Statement announced plans to increase expenditure on infrastructure and provide support for housebuyers, which was followed up in the 2013 Budget with tax threshold rises, pension increases and the Help to Buy programme for first-time buyers. The 2014 Budget continued this theme: more tax reductions, pensions reform, extension of Help to Buy (now laughably known as Help to Buy Votes), promises of infrastructure investment. Now, correct me if I am wrong, but infrastructure investment, tax cuts, pension increases and help for homebuyers are fiscal stimulus, are they not? And of course expectations matter. Austerity starts with its announcement, and so does stimulus....
So the Chancellor whom Cochrane quotes approvingly as saying that Keynesians wanting fiscal stimulus were "wrong" has actually been doing, er, fiscal stimulus - though more for political than economic reasons. It's amazing what effect the growing proximity of an election has on economic policy. And it's also amazing how gullible a Keynes-hating (or perhaps more accurately Krugman-hating) US economist can be.
And Paul Krugman is not his friend:
...have been a learning experience. But not so much about economics--I didn’t see the crisis coming, but post-crisis macroeconomics has actually worked pretty much the way I expected and predicted. (Yes, deflation is surprisingly hard to achieve, but I took that on board early.) No, it has been a lesson in human nature--on the ability, or lack thereof, of people to admit when they are wrong, or at least to stop digging when they’re in a hole. And the lesson has not been encouraging.
But Noah Smith is least of all his friend:
...to write this latest blast comes from his ongoing personal feud with Paul Krugman, generally acclaimed as the champion of "Keynesianism". Of course, the Wall Street Journal eats it up, since to most WSJ readers, "Keynesian" is a code-word for "commie" (thanks, Friedrich Hayek).... A few good points buried deep inside... but... mostly wrong. To wit:
No government is remotely likely to spend trillions of dollars or euros in the name of “stimulus,” financed by blowout borrowing.
Sure, but that's always true. Then when the crash comes, "everyone's a Keynesian in a foxhole," as Robert Lucas said.... This is a time-stationary process, dude....
Keynesians told us that once interest rates got stuck at or near zero, economies would fall into a deflationary spiral. Deflation would lower demand, causing more deflation, and so on.
Well, that's a good point! Where IS the deflation? When you have to patch up a theory after every contrary fact, you get a degenerating research program. See also: Every other macroecnomics research program.
Our first big stimulus fell flat, leaving Keynesians to argue that the recession would have been worse otherwise. George Washington’s doctors probably argued that if they hadn’t bled him, he would have died faster.
By what measure did the stimulus "fall flat"? Arguing about macro counterfactuals may be a mug's game, but a Booth Business School survey of economists found that 92% thought the ARRA lowered the jobless rate. Check out the list. That's an awful lot of well-respected doctors....
With the 2013 sequester, Keynesians warned that reduced spending and the end of 99-week unemployment benefits would drive the economy back to recession. Instead, unemployment came down faster than expected, and growth returned, albeit modestly. The story is similar in the U.K.
But didn't a 3% sales tax hike send Japan spiraling into recession? Oh, the competing anecdotes! WHO DO I BELIEVE??
Keynesians forecast depression with the end of World War II spending. The U.S. got a boom.
Well, you know, except for that 12.7% fall in GDP in 1945.
The Phillips curve failed to understand inflation in the 1970s and its quick end in the 1980s, and disappeared in our recession as unemployment soared with steady inflation.
We'll always have Paris.
Hurricanes are good, rising oil prices are good, and ATMs are bad, we were advised: Destroying capital, lower productivity and costly oil will raise inflation and occasion government spending, which will stimulate output. Though Japan’s tsunami and oil shock gave it neither inflation nor stimulus, worriers are warning that the current oil price decline, a boon in the past, will kick off the dreaded deflationary spiral this time.
This is a good point! Liquidity trap models with all those paradoxes are hard to square with reality. though Japan's growth did certainly rise after the 2011 tsunami and has been rising faster than America's since, and they've switched from deflation to inflation, so that might not have been the best example....
I suspect policy makers heard this, and said to themselves “That’s how you think the world works? Really?” And stopped listening to such policy advice.
Well I suspect policymakers would be caught dead in bed with Siamese twins before they'd open up a New Keynesian DSGE paper and try to work out its implications, but hey.
Keynesians tell us not to worry about huge debts
Except in, say, Krugman's paper with Eggertsson, which is all about how debt is baaaad. I guess Cochrane means government debt. But I have heard self-identified Keynesians say that government debt isn't as bad as private debt after a recession, and that governments should run deficits in busts and then do austerity in booms. Is that crazy?
Stimulus advocates: Can you bring yourselves to say that the Keystone XL pipeline, LNG export terminals, nuclear power plants and dams are infrastructure?
I bet they could...
Can you bring yourselves to mention that the Environmental Protection Agency makes it nearly impossible to build anything in the U.S.?
This is not necessarily a good point.... Infrastructure costs are weirdly high in the U.S... but it's local NIMBY landowners, not the EPA).
...Wait, what did this have to do with Keynesians? Oh, yeah, I forgot. Commies, etc.
Now you like roads and bridges. Where were you during decades of opposition to every new road on grounds that they only encouraged suburban “sprawl”? If you repeat in your textbooks how defense spending saved the economy in World War II, why do you support defense cutbacks today? Why is “infrastructure” spending abstract or anecdotal, not a plan for actual, valuable, concrete projects that someone might object to?
COMMIES
Keynesians tell us that “sticky wages” are the big underlying economic problem. But why do they just repeat this story to justify inflation and stimulus? Why do they not advocate policies to undo minimum wages, labor laws, occupational licenses and other regulations that make wages stickier?
If I recall correctly, Keynesians think getting rid of sticky wages in the middle of a recession is bad. Also if I recall correctly, if you take sticky wages out of a New Keynesian model, you still get a recession when a bad demand shock hits, the recession just reduces people's hours instead of sending them into involuntary unemployment.
Inequality was fashionable this year. But no government in the foreseeable future is going to enact punitive wealth taxes.
Wait, how is this related to stabilization policy? Besides COMMIES, I mean.
So here is my assessment.... I'm sure Cochrane does really, honestly believe that self-identified Keynesians are a bunch of, essentially, commies. Which means that when he says "Keynesians", he's not thinking of Bob Hall, Emi Nakamura, Jordi Gali, or Roger Farmer. But maybe he should.... The WSJ editorial page readership seem mentally stuck in the 1970s. Or at least, some of them do. We live in a Malmendier & Nagel world....
Also: COMMIES!!!
Also: I stole the title of this blog post from @cellsatwork on Twitter, and I'm not sorry."
