APK is pressuring me to write this, but he's making me uncomfortable. Unfortunately he's a rather scary guy (wears his NRA card on his chest), so I'm not inclined to argue. APK has been reading Brad DeLong and Paul Krugman, and boy, is he pissed. You'll recall what he said about Christy Romer the other day, which doesn't bear repeating. He was well beyond his usual smeariness, I'd say.
To get to the point, APK loves John Cochrane (though his love may well be unrequited), and so was seething with hateful venom when he read DeLong's and Krugman's posts, and practically ruptured an artery when he read
"hayters gotta hate; bullshitters gotta bullshit." It's what they do. It's who they are.This comment from DeLong, which of course hits the nail on the head - Jane Austen couldn't have said it better - was wittily seconded by Krugman, who referred to Cochrane as "remarkably dense."
To no avail, I tried to convince APK of the wisdom in Krugman's post. Surely it's obvious that, in a liquidity trap, the Treasury should fill bottles with Federal Reserve Notes and bury them in coal mines. APK is just one of those people who, as Krugman says, "...find this sort of thing absurd on its face." Well, people are so stupid, I must say.
Anyway, after two hours of target practice to rid himself of excess rage, APK sat at his desk and scribbled out a rebuttal. You'll recall APK's analysis of our liquidity trap predicament, in the figure on my last post. In APK's model, which is essentially the same as Krugman's, except the AD curve is flatter, there is excessive aggregate demand in a liquidity trap. APK now has a litany of paradoxes:
1. The paradox of small government: Government spending goes down, and this makes output go up. Why? The decrease in government spending increases prices, reducing the real value of private debts, which causes an explosion of private expenditure.
2. The paradox of the multiplier: It's negative! See (1).
3. The anti-paradox of thrift: An increase in autonomous saving increases output. See (2).
4. The paradox of housing: Tax housing construction and output goes up. See (2)
After reading this, I had the following conversation with APK:
Me: But surely, you don't expect anyone to buy this, do you? It doesn't even pass the smell test.
APK: No, no. It's great. It's so simple. Everyone will get it. In fact, I've been talking to Newt about it. He's planning another run, and loves my economics. I can be Treasury Secretary if I play my cards right.
Me: Actually, I was thinking of the economics profession. They'll all think you're an idiot. Back in the day, Lucas said "beware an economist bearing free parameters," or something like that. What was that paper Sargent wrote? Something about "demand and supply curves." Read that again, and tell me what you think. Seriously, anyone under 60 is going to think you're a real clown.
APK: No, no. Reading that high-minded stuff is just a waste of time. Everyone out there has the attention span of an earthworm. Look, Krugman gets away with this big time, and he's making a fortune. This is where the money is.
Me: Fine, it's your funeral.
Then, APK left with his friends to shoot pumpkins off fence posts. Hopefully gone for good, but with my luck he'll be back.
I second that.Delete
Tell that to Williamson, please. He needs to get off my back about preferences, endowments, technology, and all thus structural nonsense.Delete
I loved it when Krugman called Cochrane "remarkably dense". I mean, Cochrane has tried very hard to earn that epitaph.ReplyDelete
Você tá até aqui também, "O" anônimo ?Delete
HUEHUE BR BR
I agree that Cochrane is "remarkably dense." His papers are impenetrable. Way too mathy.Delete
I would not say that. His finance papers are quite straightforward and mostly very good. The problem is his other persona, the remarkably dense libertarian son-in-law.Delete
The libertarian son-in-law is the one I love.Delete
What is Krugman's utility function ? He appears to be extremely egotistic, and chooses his positions to ensure he gets as much attention as possible. I dont know if he really believes anything. Lucas and Sargent on the other hand do genuinely seem to care about science.ReplyDelete
People are interesting, aren't they? You could spend a lifetime backing out those preferences, I think.Delete