Thursday, January 19, 2012

Stimulus and Etiquette

The stimulus wars are heating up again.

I wrote my last, and I thought best, summary blog piece "Stimulus RIP" in November 2010, (all my stimulus posts here), but a previous 2009 post seems to be behind a new outburst of blog activity. I won't get it all, but some contributors are David GlasnerScott Sumner, Kantoos , Brad DeLong and of course, Paul Krugman

Some response seems called for.


Let's be clear what the "fiscal stimulus" argument is and is not about.

It is not about the proposition that governments should run deficits in recessions. They should, for simple tax-smoothing, consumption-smoothing, and social-insurance reasons, just as governments should finance wars with debt. That doesn't justify all deficits -- one can still argue that our government used the recession to radically increase permanent spending. But disliking "stimulus" is not the same thing as calling for an annually balanced budget.

Nor is it about debt financing of "infrastructure" or other genuine investments. If the project is valuable, do it. And recessions, with low interest rates and available workers, are good times to do it. That doesn't justify all "infrastructure" roads and rails to nowhere, of course. A good test: If China offers to deliver an infrastructure project at half price, but no "jobs" will be "created," do you still want it? If you say "yes, even more" than it's infrastructure. If you say "no, we need to create jobs" then it's stimulus. 

The "stimulus" proposition is that additional spending -- whether needed or not -- raises output and general welfare.  Pay people $1 to dig ditches and fill them up again, and the whole economy gains $1.5. Yes, endorsed by Krugman because it "feels like a job" (his back must not hurt like mine does) and by DeLong: "anything that boosts the government's deficit over the next two years passes the benefit-cost test--anything at all."  

The "targeted," "infrastructure," and the whole worthy apparatus to monitor the wisdom of  "stimulus" spending (see John Taylor) is, in the Keynesian model, beside the point, or at best a smokescreen to befuddle the ignorant masses. It would in fact be better if the money were stolen. Thieves have high marginal propensity to consume, and they can get that "spending" out fast in an economy with few "shovel-ready" projects.

Stimulus is a remarkable proposition, because  micro fallacies morph into macro wisdom. We all lambaste mayors who tax small businesses (or borrow against future taxes) to build showpiece "jobs" projects. This way lies Buffalo. Yet for the economy as a whole, stimulus says, it's true. The hurricane should have been bigger, so the government would have spent more money to rebuild. Many stimulus advocates point to WWII spending. Think about what that means: all those tanks, ships, and airplanes on the ocean floor were not a terrible economic sacrifice we paid to win a desperate war. Every ship the Germans sunk let the government buy another ship, and gain a ship and a half worth of GDP in the process!

Such paradoxes are sometimes true in macroeconomics and finance -- for example, we can individually sell stocks, but collectively we can only drive down prices. But you can see how hard the proposition is once you understand it and pull back the smokescreen-- and how delectable "stimulus" is for politicians who  love to build those "jobs" projects even when they are a net drain.

On silence

I've been off this issue for a while, mainly because fiscal stimulus is so clearly off anyone's policy or economic agenda. The US is not about to deliberately borrow another few trillion dollars a year and send it down whatever rathole is handy in the name of stimulus. The Administration won't even use the word "stimulus" anymore. Europe is even less likely to do it. Krugman, amazingly, thinks Greece should be spending more.

Everyone else sees our task as avoiding a global sovereign-debt crisis.The fascinating macro economic question is why our "short run" recession seems to be turning in to "long run" stagnation and slow growth. Lack of government spending is not high on most people's lists.

So, fiscal stimulus doesn't seem worth much blogging effort to me. It's just off the menu. We might as well debate a gold standard vs. bimetallism.

The state of affairs

Stimulus still an economically interesting proposition, and there is a great deal of uncertainty about whether, when, and how well it might work. There is a huge academic literature being produced right now, as typically happens after any event makes the news.

Here are the facts. Some economic models do predict a fiscal stimulus effect. Some don't. Some of those models have huge holes in them (the standard IS LM model, which even Krugman admits is "ad hoc").  Some don't. The rather mysterious "New Keynesian" stimulus models could use a lot of investigation (More in an upcoming post.)

Even if stimulus works, when and for how long? A lot of models give more stimulus when interest rates are stuck at zero. But many advocates, like Krugman and Delong, want more government spending even for times and for countries (Greece) with high interest rates. Surely too much spending eventually leads to debt crises or strangling taxation, but when? (Then, advocates usually want inflation and devaluation, but that has a limit as well.) 

The facts are far from decisive.  The right says: "The government spent like a drunken sailor and we still had an awful recession. Stimulus Failed" The left says "It would have been way worse without the stimulus."  History does not paint a clear picture either. GDP rose a lot along with Government spending at the beginning of WWII. GDP didn't fall like a stone at the end of WWII. Economists are producing hundreds of papers and volumes of studies for us to sort through, which I'll review in the future, but cause and effect will always be hard to tease out in economics.

So, there is a lot of uncertainty and a lot we don't know about how the macroeconomy works. That's what makes being an economist fun! There is a lot that well-read thoughtful economists can do to summarize and contribute to this debate.


What help do we get from Krugman to help us understand this debate, sort out the assumptions and the facts?
  • Here: "Lucas/Cochrane made simple, fail-an-undergrad-quiz-level, errors."
  • Here:  "The nonsense problem"  Cochrane and Luas  don't have a "defensible model." 
  • Here: "The great Lucas made a nonsense argument by any standard"
  • Here: "Oh, and the Cochrane-Fama thing ...there doesn’t seem to be a model behind it, just a misunderstanding of what accounting identities mean"
  • Here: Again, "no model".
  •  Say's Law.Say's Law,   Say's Law and "Economic Barbarism". I and Lucas are "propounding Say’s Law — the idea, refuted 75 years ago, that all income must be spent and hence that supply creates its own demand"
  • Here: "New Keynesians understand New Classical models, but New Classicals don’t"
This is all ridiculous, of course. No, I -- and certainly Bob Lucas and Gene Fama -- am not making the "Say's law" fallacy. We all understand the difference between identities, budget constraints, and equilibrium conditions. Should I just respond "Bastiat's fallacy" over and over again?

(The issue is how saving = investment is achieved, and what happens out of equilibrium. Keynesian models specify that "plans" depend on income, and do not have to add up via a budget constraint -- you can "plan" to consume save and pay taxes more than your income. Income then adjusts until saving equals investment. In "classical" models, "plans" are called "demands" and have to add up to income. Prices adjust to clear markets. In "new Keynesian" models, those prices are sticky.  I'm simplifying drastically here for public consumption, so Brad and Paul, spare us the outburst on what a moron I am or that I didn't mention x assumption.)

"No model" is even more ridiculous. What, there is no economic model in which fiscal stimulus falls below 1.5? Or we somehow "don't have" the models in our graduate reading lists, and in the footnotes to my blog posts? "Barro, Kydland and Prescott, King and Baxter, King,Plosser, and Rebelo, Uhlig,.Taylor, don't exist?... Maybe those models are wrong. Maybe they are logically coherent but don't fit the data. But to say they don't exist is just ridiculous!

Then there are the insults and slander.The most hilarious are the doctor-heal-thyself accusations:
And Krugman  is a piker in this department relative to Delong, for example calling me and others "a bunch of rather lazy ideologues who haven't done and won't do their homework talking bullshit and trash." And " so on.

There is a lot of uncertainty in macro, both theoretical and empirical. There is a huge outpouring of serious work. How does it help at all to say your side has perfect wisdom, enshrined in a roughly 1975 vintage ISLM model, and everyone who disagrees, including Lucas, Prescott, Fama, and so forth is stupid, lying, doesn't understand econ 1, thinks 2+2=5, or in the pay of wall street? A worthy analysis investigates how sensible people can come to both views, and then isolates which assumptions or facts they differ on. (Something I haven't done here for lack of space, but will return to later.)

What is wrong with these people?

I'm not the first to notice this emptiness of argument, and they're starting to be defensive. It's ok to slander and insult, because, as Krugman writes and Delong  Endorses " This is not a game, and it is also not a dinner party; you have to be clear and forceful to get heard at all." It's all necessary because  "Economic policy matters" .

What self-important hogwash! Life is a dinner party -- at least if your goal is the truth, and you have a bit of humility to understand our limits and still be searching for it. Didn't your mothers tell you that? "Because it matters" is precisely why it's important to acknowledge our limitations and search politely for the answers.

Note to the blogosphere: This is not how real economists discuss things. I've had great and productive  interactions with Austan Goolsbee, Mike Woodford, David and Christina Romer among many other serious economists who are favorable to stimulus. Nobody calls anyone else a moron. Normal people behave this way. They can do so even if communicating via the internet. 

The question is, what is wrong with the rest of us that we pay so much attention?

Well, I'm done for a while, but I will return to stimulus soon, trying to digest the outpouring of thoughtful academic work on both sides. I realize I didn't get much into the theory or facts about stimulus, but this is a reaction blog post not an encyclopedia, so that will have to wait for another day.


  1. Can you divide future posts like this into two?

    One for intelligent discussion.

    One for rants.

    I don't care for the later and I have no problem thinking for myself on economic matters.

    Thank You

    1. "...I have no problem thinking for myself on economic matters."

      Then why are you on an economics blog...or is that your threat?

    2. This comment has been removed by the author.

  2. Thank you very much for your contribution!
    When you say:
    "A worthy analysis investigates how sensible people can come to both views, and then isolates which assumptions or facts they differ on."
    I like very much this approach, I am only one among your readers, but I can assure you I am going to wait for the next part of the analysis on the stimulus topic!
    Thank you again!

  3. " is not about the proposition that governments should run deficits in recessions. They should, for simple tax-smoothing, consumption-smoothing, and social-insurance reasons..."

    "..If the project is valuable, do it. And recessions, with low interest rates and available workers, are good times to do it..."

    I am personally still confused how this is different from stimulus that we had in 2008/9.
    Presumably, the people responsible for picking projects that went into it, thought they were valuable, no? If not, well that is the problem with government trying to run the deficit and smooth consumption - government is inefficient at picking projects

    So it sounds to my layman's mind like you are backtracking and/or trying to have it both ways on the stimulus.

    1. In our political system, when something actually gets done, there is usually a good reason and a real reason. The real reason for the infrastructure work in 2008-9 was that we needed to do it. But no one ever believes the government when it says it needs to do something, because, often enough, it doesn't need to do it. So we have the good reason: to create jobs. It is very important to understand that the good reason does not need to be valid; it only needs to be believed. If there is a real reason, then coming up with the good reason is part of the art of the possible that we call politics.

    2. Exactly right.

      'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.'

      'The question is,' said Alice, 'whether you can make words mean so many different things.'

      'The question is,' said Humpty Dumpty, 'which is to be master — that's all.'

  4. Market Monetarism would be a better topic than "Krugman is not well mannered."

  5. I've read that post several times now and I don't see anywhere where Krugman calls you a mendacious idiot. Could you please show him saying it or retract the accusation?

  6. There's no single sentence where he says "John Cochrane is a mendacious idiot", but that does seem to be implicitly indicated in his linked post. But you didn't provide any link for "Mr. I-have-a-Nobel-Prize-so-you're-a-moron". It's typically people who disagree with Krugman who point out his Nobel (or maybe that's just what kind of blog I read, I haven't read the NYT much since the paywall was implemented).

    My understanding is that Fama focuses on finance*. Has he ever published any models of stimulus? Perhaps he's implicitly relying on someone else's model, but I'd think it more fair to say he doesn't have one.

    I don't think I'd heard of Brian Riedl before. I'll have to look up his argument.

    *The alliteration is unintentional.

    1. If you look back to Krugman's "How economists got it so wrong" you will find that Krugman himself argues that there should be a wedding of Finance and Macro. The equity premium puzzle for instance is something we learn about in both Macro and Finance.
      If you look under "general economics" you will find some of his macro-flavored papers.

    2. >theres's no single sentence that says "John cochrane is a mendacious idiot"

      Even if there had been, that still isn't necessarily as hominem.

      If he said, "John Cochrane is an adulterer, and therefore nobody should take him seriously on economics", that would be ad hominem.

      But if he says "John Cochrane is an idiot, and here's why", that's not ad hominem, provided he backs up the statement with a logical argument.

      People throw around the term "ad hominem" far too quickly. It's not just a fancy way of saying "he was being mean to me". I would expect Cochrane to be sophisticated enough of a debater to know something as simple as that.

    3. Exactly. Ad hominem attacks are equivalent to "X is an unworthy human being, therefore X is wrong." I don't find that in anything you link to.

  7. 1. This isn't a schoolyard playground. Krugman is often not polite. You and Lucas and Fama are often not polite. It doesn't matter who started it, and complaining about Krugman's poor manners ad nauseum is a waste of time. Take the high ground.

    2. The fact that GDP did not drop like a rock after WWII is not evidence that cuts against the idea of fiscal stimulus. Indeed, fiscal stimulus is supposed to be temporary: it gets the economy out of its doldrums, so that when the stimulus is removed, the economy can stand on its own.

    You've gotten the theory here exactly backward. If the economy did sink back into Depression after WWII, that would demonstrate that the stimulus failed. If that had been the economic response, then the proscription would not be counter-cyclical fiscal policy but a permanent welfare state.

    Indeed, you and many others have written that Keynesian policies imply a large structural deficit, a welfare state, and persistent government spending in the economy. That's simply not true. It's more than not true: it's preposterous. Noah Smith caught you describing India's license raj as Keynesian policy.

    Put these two errors together and maybe you might see why lots of people -- not just Krugman -- think that either 1) you don't understand what Keynesian policy is about or 2) are intentionally distorting it. Keynesian economics is not a theory of a welfare state. It is not refuted by evidence that a welfare state did not emerge post-WWII.

    I cannot believe that nobody has pointed out these very basic errors to you before. You apparently have not been listening. Krugman has many theories as to why not. I don't know you, and I don't know whether any of Krugman's theories are correct.

    I do know, though, that if you want to be mocked less frequently, a good way to start would be to open your mind.

    I wonder if this comment will get deleted.

  8. Here's another thing that might get people to take you more seriously. Stop putting words in your opponents moouths.

    You say that Krugman, amazingly, "thinks Greece should be spending more." Follow that link, and it turns out that he says nothing of the sort. Here is the entirety of what he does say about Greece in that column:

    "Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits."

    This is a fact. There is no claim of causality. And then:

    "Now, you could argue that Greece and Ireland had no choice about imposing austerity, or, at any rate, no choices other than defaulting on their debts and leaving the euro. But another lesson of 2011 was that America did and does have a choice."

    That's it. Not a single word that Greece should be spending more. Indeed, an acknowledgement that Greece may have had "no other choice" but austerity.

    Yet you summarize the argument as Krugman advocating that Greece spend more. And then you protest that others think your writing is mendacious. Hmm.

    P.S. As a poster above noted, Krugman did not call you a mendacious idiot. He did not pull rank with his Nobel Prize. I'd add that he did not advocate ditch-digging as stimulus (he was indulging a hypothetical raised by another commentator of stimulus spending that was completely worthless; that's not advocating such spending). Oh, and the idea that there are positive effects that flow from people feeling as if they have a job is an idea with a long conservative pedigree, e.g. workfare.

    So there's a pattern here. And I've only clicked on half your links.

    1. "Here's another thing that might get people to take you more seriously"


      Maybe "people" don't take prof. Cochrane seriously but pretty much every serious economist does. He has a tremendous record of accomplishments and a terrific record of research.

      Funniest post I've read all week.

    2. "So there's a pattern here. And I've only clicked on half your links."

      The pattern is you have persistent problems in reading comprehension. My advice is to hire a private tutor to guide you through your readings.

    3. He might have great research and accomplishments. He's also been saying some fairly silly things recently, and more importantly, has been making all kinds of false and dishonest accusations.

      Say what you want about Krugmans and DeLong, but I've never seen either invent arguments out of whole cloth and assign them to their opponents, as Cochrane does repeatedly here. They may distort and misrepresent and not tell the whole truth, but that's a different thing altogether than saying that Krugman wanted Greece to borrow more money in a post where he states the opposite.

  9. John-

    Good post. Anyone who thinks Krugman has not been out of line and completely disrespectful to you, must be living on another planet. What has happened to academic discord? Krugman is intellectually isolating himself (and doing exactly what he accuses his opponents of) by constantly marginalizing other views.

    He has found a niche playing a rude commentator and cherry picking data points. His analysis of your original piece on stimulus should embarrass anyone who claims to be an intellectual.

  10. Brad Delong has thrown several specific arguments and challenges at your line of reasoning, most recently here:

    Rather than just claiming that you have the models (and, implicitly, arguments) to counter Delong, and otherwise declare the debate over and done with (as alegedly noone cares - well, I do), I would much appreciate if you would respond to Delong's challenges and arguments with as specific counterarguments and counterchallenges.

    This would at least contain the possibility of moving the debate forward.

    Henry Kaspar

  11. I found this in an earlier post of Prof. Cochrane (but couldn't figure out how to comment there):

    ""The question is not the family's spending, but where did the $100,000 come from, and what were they going to do with the money? Most likely, someone was saving money, and put it in a bank.""

    Not likely at all. Savings and deposits are two different things. A bank doesn't need to tap some saver to expand credit. The bank creates credit and the corresponding deposit at the same time.

    The question is whether the additional credit-funded absorption crowds out other absorption. At full employment yes, with under-employment no.

  12. John, any valid approach to Keynes requires not just more spending in downturn, but ALSO no new spending in boom times.

    Reversing it, if you RAISE public employee salaries when gvt. revenues increase, you are signposting that you DO NOT intend to do stimulus during downturns.

    For the ying, there is a yang.

    And since we increased public employee compensation (L, S,& Federal) more than $500B per year over CPI since 1998, there has been plenty of advanced warning that if things went south, we'd not be doing stimulus, because - Keynes isn't our operable paradigm.

    IF we are going to be Keynesians going forward, then t e public employees need to be told Keynes doesn't want them to get raises once the economy tuns around.

    1. "we increased public employee compensation (L, S,& Federal) more than $500B per year over CPI since 1998"

      You mean 500 MILLION, right? Otherwise you have roughly a 6 trillion increase in real dollars just for INCREASES in public sector wages, let alone the pre-increase numbers.

    2. did you take inflation into account? how about population growth (and therefor natural government services growth?)

      Did either cross your mind before you through up a random number and started claiming professionals (who happen to choose a career in the public sector) should NOT EVER GET RAISES!?!?!!!

      Clearly you've never run a large budget before. Part of the budgeting process includes compensation for both new (inexperienced and cheaper) and experienced (the opposite) and all along the spectrum. GIving raises should not radically increase the budget... if you did it right in the first place.... (also you do standard budget increases for inflation too!)

      Your fallacy here just expresses so perfectly the trouble so many people have with separating macro and micro behavior.

      So new rule of thumb... ?... If you cant understand this simple macro budget when it comes to "raises" why don't you leave big macro stuff (like the whole economy) to those of us who do?

      If wishes were horses...

  13. Another thing: if you call for automatic stabilizers during recessions instead of stimulus, you are basically saying you would rather pay people to do nothing than have them be employed on some kind of government funded project. Does that make sense ? I would rather take the risk that the projects will be wasteful and have millions employed on those projects ( temporarily, until recession ends ) than simply pay those people to do nothing via "consumption smoothing" and "automatic stabilizers". We know that the longer people do nothing, the harder it is for them to go back in - human capital does depreciate with lack of activity. That is the main point of Krugmans and Delongs. I haven't really seen you address this.

    1. "I would rather take the risk that the projects will be wasteful and have millions employed on those projects"

      Please don't tax me to support your gambling habit...

  14. Prof. Cochrane says "been off this issue for a while, mainly because fiscal stimulus is so clearly off anyone's policy or economic agenda." I'm assuming from that statement he was at the forefront of those calling loudly for aggressive stimulus back when it was on the political agenda. Can someone please point to some posts or articles by Cochrane calling for such stimulus? Thanks.

  15. Freshwater economists owe it to themselves to hoof it over to the mechanical engineering department (if there is one...maybe that's the problem!) and take a class in fluid mechanics.

    A disciple of the perfection of classical physics may tell you that attempting to swim will get you nowhere. Flail all you want, but the balance of forces will cause the fluid to move around you and restore equilibrium without moving you an inch. Sound familiar? It's how a freshwater economist would explain the failure of swimulus!

    Then the ME professor would smack him on the back of his head and tell him that this is the real world, there is no such thing as an ideal fluid in the real world, and it makes all the difference. Real fluids have viscosity - a small amount of "stickiness" that provides resistance to shear stress as particles slide over each other to restore equilibrium. And that viscosity provides the traction that allows your paddling to propel you forward. Sound familiar? It's the Krugman version of swimulus!

    Lesson: Be wary of any model that is too perfect when you are looking for an explanation of real world behavior. Whether atoms or rational actors, no matter how elegant and perfect the rules of their interaction, the agglomeration of billions of them is at best a crudely self-organizing mess. Frictional forces and signal transmission lags are practically universal in complex systems, and any economic theory that discounts such transient effects ("stickiness") can easily be dismissed as fantasy.

    1. This comment has been removed by the author.

    2. Swimulus! This post made my day. :-)

    3. Beautiful and excellent! Perfect analogy

  16. Dear Mr. Cochrane,

    Stop poisoning the debate by talking about yourself so much. You were wrong, glad you've admitted it. Hopefully we can start elevating policy debate to practical applications now. Welcome to the fold of people that are actually trying to fix the economy and not increase the size of their personal bank accounts.


  17. I am trying to decipher which one of the points made by the saltwater professors was incorrect opr which rebuke was undeserved.

    Now that you have reversed yourself entirely and concluded that stimulus may help, and that denouncing stimulus is wrong even though that was your clearly stated position just a bit ago, you should just outright admit it. The dismissal of Keynesianism and countercyclical spending as "not taught for decades" was an foolish attempt to discredit the only model that has had predictive success in the current circumstances. It was incorrect, rude and misleading but now you complain about the tough responses. It is completely clear to any reader that your slavish devotion to a waning ideology is a determinant in the faulty argumentation.

    The proper response in this circumstance is, "I was wrong, you were right, and I will pay much closer attention in the future, thank you for the education". Perhap openness to learning beyond your chosen paradigm was not a major crtiteria in your arrival at your present position.

  18. ugh. either you're really quite stupid or just a total asshole. I'm going to give you the benefit of the doubt and assume the former.

    1. ps to quote Noah Smith:

      "Our existing roads and bridges - which clearly do NOT lead to "nowhere" - are falling apart. Even Obama's ARRA "stimulus" did very little to correct the problem. And instead of borrowing more money to fix our crumbling public goods, at a time when borrowing costs are historically low, conservatives are demanding that we tighten our belts and "starve the beast." We are not even close to addressing the question of whether to bury jars full of money.

      So why doesn't Cochrane stand up and loudly advocate a massive debt-financed program of road and bridge repair? Is it because the public might get the wrong idea, and start believing in "stimulus" of the hole-filling variety? Is it because infrastructure investment must be politically sacrificed in order to "starve the beast" and fight against creeping socialism? Is it just because Paul Krugman and Brad DeLong are mean mean meanies?

      For crying out loud!"

  19. What I don't understand is how you can write with certainty about the economy yet you also write "So, there is a lot of uncertainty and a lot we don't know about how the macroeconomy works."

    To give an example of your certainty - you wrote "First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This form of “crowding out” is just accounting, and doesn't rest on any perceptions or behavioral assumptions. "

    The latter is written as if you are absolutely sure of yourself, and it is used by politicians to make decisions that have large consequences for a lot of people. And here I agree with Krugman: this is not a game. Your statements as a university professor do have consequences. So if you are not certain you should say so, every time you are not certain. If not, you are responsible for the bad policies that are based on your uncertain statements.

    By the way I also don't understand why every dollar of increased government spending must correspond to one less dollar of private spending. In my understanding there is currently a lot of cash sitting idle, doing nothing at all. If the government took that cash (as taxes) and spent it on projects for the common good (like getting rid of all those potholes that damage my car, or not further shortening the school year), there clearly would be more spending. I think your statement on “crowding out” only pertains to a situation of (near) full employment.

  20. If there has been a blog post with more scare quotes in it, I have not seen it. I stopped counting at around a dozen.

    As a whole, it makes your argument seem overwrought, even hysterical.

    Seeing that sort of table-banging, I would suspect you to be the proverbial lawyer with neither the facts nor the law on his side.

    After all, once you have allowed that of course any positive expected value project should be done on merit, and of course the best time to do that is using otherwise idle capital and labor, well then it seems that you are just doing backwards somersaults over Keynes' grave.

  21. Good to see even the most radical anti-Keynesians coming to their senses and seeing that Keynes was right after all. That's what the last few years proved to us after: that Keynes was right, that recessions don't happen because workers decide to take a break, and that well-timed government intervention can improve the situation.

    Congratulations on your about-face, Prof Cochrane! That's how real scientists act when they see they were wrong. Now if you want my advice, don't call other economists names just because they had reached those conclusions before you.

  22. With all due respect Mr Cochrane the first part of this is something of a retreat from previous critiques of the basic tenets of Keynesianism I've read by you.

  23. You wrote, "Krugman calls me, by name, a 'Mendacious idiot'" and then linked to a Krugman post that does no such thing. You made a false accusation against Krugman that anyone who clicks on the link you provide can easily check.

    Krugman does not coin the phrase "mendacious idiot" but instead defends himself against Alex Tabborak's accuastion that "one thing remains constant in all of Krugman’s writings, anyone who disagrees with him is portrayed as a mendacious idiot." He is making the point that the criticism he levels at you and others is something different than portraying you as a mendacious idiot. Here's what he says about you:

    "Now, what about people like Cochrane? You need to bear two things in mind. First, he and his friends entered this whole debate by declaring that Keynesian economics of any stripe was total nonsense, “fairy tales” that nobody serious believes. Then they proceeded to make howling, basic errors. And I was supposed to respond politely? I’ve never gone ad hominem on them — but I’ve called nonsense and ignorance when I see them. So?"

    Krugman said you made "howling, basic errors" and characterized some of your statements as "nonsense" and "ignorance." He was playing hardball but the words on the page make it clear that he did not call you "by name, a 'mendacious idiot.'" Why did you write that he did so? Didn't you expect any of your readers to click on the link to check for themselves?

  24. Krugman did not call you, by name, mendacious. But after reading this post I am giving him my full permission to call you just that: mendacious.

  25. I got to the end of the road here and thought I should join the long list of people giving you mad props for ranting about taking "the high road" for half the blog all the while lying about what people have "called you."

    you've earned every right wing dollar you've made.

  26. There's just no way to save face here JC, but the attempt is understandable...

  27. Maybe the post should be entitled "stimulus and strawmen", for the attacks on arguments no one is making.

    To pick one disingenuous point, the author says "The facts are far from decisive. The right says: "The government spent like a drunken sailor and we still had an awful recession. Stimulus Failed" The left says "It would have been way worse without the stimulus." As if each statement is equally valid. When the right says we had a bad recession anyway, it pretends the stimulus came before the recession, not the other way around. Since I have trouble believing anyone has forgotten something that obvious just three years later, I have to conclude anyone who says that is lying. The author should have made clear such a statement is factually wrong.

  28. John:

    I hope the nasty, childish comments that your blog has generated won't discourage you from continuing to post your thoughts. Many of us truly want to hear what you have to say.

    The blogosphere truly HAS become a schoolyard playground, thanks to the online behavior of Krugman and Delong and their merry band of loyal little lackies. It SHOULD be a dinner party, as John suggests, but Paul and his nasty followers have made sure the debate is poisoned and on the level of a 10 year old.

    Paul's defense? I've never insulted Ken Rogoff! Lucky Ken! One of the lucky few! Other economists (Cochrane, Taylor, Mulligan, Metzler, Barro, Mankiw, Scott Summers, Lucas, Kotlikoff - does the list ever end?) are not so lucky, but are fortunately grown-up enough to suffer Paul's insults.

    Another defense of Paul: I'm right, they're wrong, and their ideas are hurting people ("this is not a dinner party"). On the basis of such delusional thoughts, not to mention the unbearable and insufferable self-importance, Paul justifies slinging insults at his colleagues.

    The defense of some of the internet children: Paul never explicitly calls John a mendacious idiot. For one thing: who cares? This is supposed to be an economics blog. But only those truly in thrall to the cult of Paul can convince themselves that this is a credible defense. O.K. - he never explicitly calls John a mendacious idiot. He just says that it's ok to treat people like mendacious idiots if they truly are a mendacious idiot. Then he mentions John in the next paragraph.

    And the attempt of these people to portray John as some sort of overly sensitive, easily offended wimp (Paul is a meanie!) is so transparently lame and unconvincing. Here's the sequence:
    Paul Krugman: You're dumb, you're an idiot, you can't read, you're a liar.
    John Cochrane: Grow up. Adults can disagree without calling each other names. There's alot we don't know here.
    Internet trolls: Stop whining, John, you wimp!

    John should follow Greg Mankiw and just make this a comment-free blog. Why bother? (The comments section of various blogs are filled with people complaining about Greg's not allowing comments).

    God bless John for standing up to Paul, a once respected economist now doing a good Joe McCarthy imitation (and Brad's Roy Cohn is not bad, either).

    1. Look, this guy has been running round for years, using his lofty academic perch to argue against stimulus, without bothering to understand the models he was criticizing. By doing so, he has contributed to massive suffering in this country. Now he tries to back out of his hole without even apologizing!

      Now he's finally realized his mistake, he should be loudly proclaiming himself in favor of using debt-funded fiscal policy and infrastructure spending (as in Obama's jobs program, for example). But he plays for team Republican above everything else, so he won't.

      Spare us the bleeding heart over some well-deserved insults...

    2. "Running around for years" - John walks fast but I've never seen him run. He likes to fly, though.

      "Lofty academic perch" - like Paul Krugman? Then any economist at a university can't debate the issues? Or they only can have an opinion if they're pro-stimulus?

      "Without bothering to understand the models" - prove it. How does he not understand the models? And don't say because he believes in Say's law, or he's hung up on accounting identities. John's addressed these straw men already.

      "Finally realized his mistake" - what? Where? How?

      "Team Republican" - John is a libertarian. Big difference.

      "Well-deserved insults" - well-deserved if you're a child who can't debate the issues without resorting to name-calling.

  29. I got about half way thought your article and I have a question.

    Are all economists now like politicians and totally devoid of having a rational conversation?

    You talk about stimulus and infrastructure and I can hear your condescension though your writing. You quickly devolve in digging holes, natural disasters, Buffalo and Greece.

    Here is the problem, unemployment. If you have a solution then say it, if not find a new profession.

    Thanks for nothing.

  30. With all due respect Mr Cochrane the first part of this is something of a retreat from previous critiques of the basic tenets of Keynesianism I've read by you.


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