Cochrane's Complaint

by the Sandwichman

Paul Krugman has no interesting ideas whatsoever about what caused our current financial and economic problems, what policies might have prevented it, or what might help us in the future, and he has no contact with people who do. "Irrationality" and advice to spend like a drunken sailor are pretty superficial compared to all the fascinating things economists are writing about it these days.

How sad.

How sad, indeed. All the fascinating things economists are writing about "it" these days! What does the word "it" refer to? What caused our current financial and economic problems? What policies might have prevented it? What might help us in the future? Perhaps a little math would help:

Math in economics serves to keep the logic straight, to make sure that the "then" really does follow the "if," which it so frequently does not if you just write prose.

That depends on what the meaning of the word "if" is. Or the word "it". And "what". Professor Cochrane's mistake was not waiting a week before uncorking his rant and giving himself the opportunity of filing it in the unsent-rants file where it belongs.

I did learn this from Cochrane's essay: "the central empirical prediction of the efficient markets hypothesis is precisely that nobody can tell where markets are going.... . This is probably the best-tested proposition in all the social sciences." Hello? That is indeed a fascinating thing. Markets are efficient because nobody can tell where they are going. That is to say, if nobody can tell where they are going; then markets are efficient. Or, to put it more bluntly, if there is a Goldman, Sachs; then there is no such thing as an efficient market. Notwithstanding the non-trivial detail that the term "efficient" in the proposition is either a non sequitur or a tautolgy. What are efficient markets efficient at? Being inscrutable!

The catch is there will always be a Goldman, Sachs. The inherent tendency of all markets is toward monopolization and manipulation. It is precisely because people will not settle for the "nobody can tell" fairy tale that markets get rigged. To pretend that actually existing markets are somehow almost the same thing as efficient markets is no different than pretending that actually existing socialism was virtually a workers' paradise or that the moon is made of green cheese and the central bank is a green cheese factory. It's all dress up and make believe.

Like Paul Krugman, John Cochran has no interesting ideas whatsoever about what caused our current financial and economic problems, what policies might have prevented it, or what might help us in the future, and he has no contact with people who do.