John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is "taught only for its fallacies." New York University economist Thomas Sargent agrees: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."
Beyond dropping a couple of well known names, what does this passage substantively tell us? Cochrane says the Keynesian multiplier has fallacies but fails to identify a single one. Sargent may be right that we have learned a lot in the last sixty years but exactly what lessons apply to this policy debate. This piece does not say. In other words, this passage is absolutely worthless as it says nothing of substance at all.
Then again, when Greg tried to tout the Fama theory by accounting identity approach – he took a rather harsh drubbing. Better to offer meaningless nothings than what appears to be a substantive argument until actually thinks about it. Maybe there are legitimate arguments against this fiscal stimulus – but for all his efforts, Greg Mankiw isn’t exactly producing convincing ones!
3 comments:
This isn't economics. It is nothing but politics. And if the Obama administration insists on playing nice with the Republicans then the Republicans will destroy any hope for any stimulus package the Democrats might fashion. That is the Republican objective and they care nothing whatever about the nation or its people. They are vile and despicable liars that believe their own lies. Their system of debt and more debt has lined the pockets of the rich and they now wish to hold the Democrats accountable for it.
The Obama administration may be smarter then I gave them credit. They are sucking on the "tax cuts" Kool-aid which will devalue the dollar. They should be purposefully causing inflation in order to reclaim the value stolen by the Republicans. All of the current money and government backed bonds and bills have been awarded to the wealthy Republicans. The Republican objective was to capture all the money and then have a continuing deflation forever. (Republican heaven). The only way to reclaim any value for the real economy and the common people is to make that money worth considerably less than it currently is. Inflation is the only tax on money.
I keep looking at the dollar and waiting for it to fall. But it seems to be stronger than rent. We simply are not creating and injecting enough money at the bottom. The problem is deflation and it can only be addressed at the bottom of the economy. Wages must be forced upward.
Why are we not hearing anything about tariffs? Have the neoclassical protectors of the rich and their "comparative advantage" crap managed to smother any real address to the outsourcing peoblem?
Cochrane is probably right about macroeconomics as taught at Chicago. Sargent is certainly right that many macroeconomists think they have learned that Keynes was wrong.
I think that each of them identifies modern macroeconomics with fresh water macroeconomics (macroeconomics taught at places nearer to the great lakes than to an Ocean). They are sure that they and like minded macroeconomists have made huge progress and they definitely have no time for the Keynesian models which everyone anywhere close to the policy making process is using.
However, neither can appeal to evidence. Sargent simply assumes that the change in the Macroeconomics literature over the past 60 years has been progress, because, I mean come on you can't argue that the efforts many people including many Nobel laureates has been worse than worthless.
Well I can and do.
The whole lot of them haven't managed to come up with a coherent story for what happened in the US in the 30s (or in Argentina, Indonesia, Malaysia, Thailand, S. Korea, or Mexico more recently).
Those were all topics for future research and really not important at all when confronting models using post WWII US data, which are, when you come right down to it, the only data that are really data.
Now the 30s suddenly look familiar, so ignoring them is not an option, unless you decide to ignore reality completely and base arguments about the economy on evidence of what has been published in the economics literature.
What value, then, does your post provide?
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