As many readers here probably already know, Chicago economist John Cochrane wrote a blistering reply to Paul Krugman’s NYT Magazine piece on what’s wrong with the economics profession. When I read Cochrane’s piece, I was dismayed because many of his arguments to defend himself against Krugman’s attacks would just as well “prove” that the Austrian school is defunct. In this article I laid out my case that Austrians shouldn’t endorse every article that targets Krugman.
Here let me just give a sample of what I mean. First, the opening salvo from Cochrane:
Most of all, [Krugman's article is] sad. Imagine this weren’t economics for a moment. 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 stalwart that maybe continents don’t move after all, or that smoking isn’t that bad for you really.
And my response:
I don’t need to dwell on why Austrians should dismiss this opening salvo from Cochrane. This is the incredibly naive Whig theory of history. Cochrane could just as easily blow up any Austrian who thinks Human Action contains better economic analysis than the latest edition of Mankiw.
(What’s really ironic is that later in the essay, Cochrane says, “Occasionally sciences, especially social sciences, do take a wrong turn for a decade or two. I thought Keynesian economics was such a wrong turn. So let’s take a quick look at the ideas.” So I’m not sure what to make of his opening paragraph. It seems Cochrane finds it “sad” that today’s Keynesians would dare to use arguments that Cochrane had deployed against yesterday’s Keynesians. A bit like the US government saying other countries shouldn’t have nuclear weapons, because after all some evil regime might use them against civilians one day.)
Click here to see more examples of Cochrane’s implicit Austrian-bashing.
{ 5 comments }
mathematical modeling makes no sense, from an insanely-high ivory tower to the average joe. It is akin to watching a video of your own future actions and their consequences, and then pretending that you will follow that path exactly, even when you see your future errors.
a model must take into account that it itself (in how it effects decision-making) is part of the model. This is impossible. It would have to know and understand all human wants and value-judgments.
It is nothing short of central planning absent planners.
Even a caveman knows more about economics than Krugman >http://www.jesus-on-taxes.com/ON_PAUL_KRUGMAN.html<
This guy Cochrane was on Bloomberg TV a moment ago defending himself. He was predictably weak, notably proclaiming loudly how absolutely, without a doubt, no one could have predicted the crisis because if they had, it, ‘wouldn’t have happened.’
Bob writes on his blog:
“Again I ask: What would the world look like if the EMH were false? Wouldn’t there be giant bubbles, during which many participants knew (or were quite sure) there was a bubble in progress–and invested and profited accordingly?”
As was pointed out to you elsewhere on this blog, and also by commenter Jose on your blog, the existence of bubbles does NOT conflict with EMH. Why do you keep saying it does?
Dr. Murphy is not saying that. He is asking what would happen if the EMH was wrong; would their not be speculative investment bubbles?
If you can have speculative bubbles despite perfect knowledge, but you could also have the same bubbles if people did not have perfect knowledge, then what events would have to transpire to disprove the EMH? It seems as though no event could.
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