For those who haven't read Paul Krugman's devastating article about the current state of economics, this may not mean much. But, fortunately, you have the delight of reading it to look forward to.
So don't let me detain you.
For the rest of you, here's his reaction to, well, the reaction:
I gather, though, that the usual suspects are utterly outraged at my suggestion that freshwater macro has spent several decades heading down the wrong path. They’re smart! They work hard, using hard math! How dare I say such a thing?From what I know of your more Randroid economists, this isn't a big surprise. This sophomoric nonsense is the worst damned thing about modern economists, and what makes me automatically suspect the findings whenever its axioms and methodologies crop up in other fields.
And all of this, of course, without a hint of irony.
For when freshwater macro took over a good part of the field, its leaders gleefully dismissed all the work Keynesian economists had done over the previous few decades, often with sneers and sniggers.
And that same adolescent quality was evident in the reactions to the Obama administration’s attempts to deal with the crisis — as Brad DeLong points out, people like Robert Lucas and John Cochrane (not to mention Richard Posner, who isn’t a macroeconomist but gets his take from his colleagues) didn’t say that when serious scholars like Christina Romer based policy recommendations on Keynesian economics, they were wrong; the freshwater crowd declared that anyone with Keynesian views was, by definition, either a fool or intellectually dishonest.So the freshwater outrage over finding their own point of view criticized is, you might think, a classic case of people who can dish it out but can’t take it.
But it’s actually even worse than that.Oh?
"Raw ignorance." Rather harsh, but I can't see how to rebut it. Saying that you disagree is one thing. That's perfectly legitimate. Saying that you teach your students one viewpoint in preference to another? That's also legitimate. Spending more time on one school of thought instead of another? Kind of questionable, but still ubiquitous.
When freshwater macro came in, there was an active purge of competing views: students were not exposed, at all, to any alternatives. People like Prescott boasted that Keynes was never mentioned in their graduate programs. And what has become clear in the recent debate — for example, in the assertion that Ricardian equivalence rules out any effect from government spending changes, which is just wrong — is that the freshwater side not only turned Keynes into an unperson, but systematically ignored the work being done in the New Keynesian vein. Nobody who had read, say, Obstfeld and Rogoff would have been as clueless about the logic of temporary fiscal expansion as these guys have been. Freshwater macro became totally insular.
And hence the most surprising thing in the debate over fiscal stimulus: the raw ignorance that has characterized so many of the freshwater comments. Above all, we’ve seen the phenomenon of well-known economists “rediscovering” Say’s Law and the Treasury view (the view that government cannot affect the overall level of demand), not because they’ve transcended the Keynesian refutation of these views, but because they were unaware that there had ever been such a debate.It’s a sad story. And the even sadder thing is that it’s very unlikely that anything will change: freshwater macro will get even more insular, and its devotees will wonder why nobody in the real world of policy and action pays any attention to what they say.
But not even teaching what Keynes was about? That's not even wrong. That's just ignorant. No, not "ignorant" as an epithet, it quite literally breeds ignorance. That's not being an educator. That's the game of indoctrinators. Cults do that.
I knew freshwaters was screwed up. But I have to admit, I wasn't expecting cultists.
Edit: Some of the commentators bring up John Cochrane's response, which includes rather a lot of "if markets are irrational, surely government regulators are even MORE irrational!" That strikes me as a clarion call to shut down the FDA. But never mind that. Take a look at this howler:
Paul, there was a financial crisis, a classic near-run on banks. The centerpiece of our crash was not the relatively free stock or real estate markets, it was the highly regulated commercial banks. A generation of economists has thought really hard about these kinds of events. Look up Diamond, Rajan, Gorton, Kashyap, Stein, and so on. They’ve thought about why there is so much short term debt, why banks run, how deposit insurance and credit guarantees help, and how they give incentives for excessive risk taking.Yes. The problem of widespread speculation in almost totally unregulated markets like CDOs and credit default swaps—by investment banks like Lehman and Goldman Sachs—was the regulation on commercial banks.
What parts aren't "gub'mint is worse!" or "Paul just doesn't understand us beautiful flowers" are generally "you're trying to turn back the clock on 30 years of science!" As seen here:
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.This is one of the goofiest damned things I've ever read.
It's not even argument from authority. Leave aside the arrogance of assuming that one branch of thought could stand in for the entire field. These sorts of reversals happen all the time, and especially in social sciences. Would linguists get away with this sort of whining if they were trying to rebut Chomsky? Would behavioral psychologists be able to use this as a response to cognitivism? Would IR liberals be able to beat back realists (or vice versa) by saying that they're based on old books? Would the vaunted criminal "profilers" be able to use it to rebut the growing tide of people who question the efficacy of their methods?
No, of course not. Even the crustiest, most hidebound Marxian would laugh at the attempt. Only the most ignorant, closed sort of mind would even try.
But here we are, with Cochrane proving the point about Freshwater insularity and ignorance more eloquently than Krugman could have ever dreamed.