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John Cochrane is a professor of economics and I’m not. But from reading Brad DeLong’s summary of Cochrane’s criticism of Paul Krugman and Keynesianism in general, the sense I get is that Cochrane is maintaining a ridiculous standpoint. His central line, which keeps getting quoted everywhere, is:
Paul’s Keynesian economics requires that people make plans to consume more, invest more, and pay more taxes with the same income.
Isn’t this an obvious and constant feature of economic reality? I mean, imagine you’ve got a closed hydraulic system with water getting pumped around and flowing through several valves. Water engineer Paul Krugman says: you can increase the amount of water flowing through each valve by increasing the power of the pump. And water engineer John Cochrane is responding: That’s ridiculous! How can the amount of water flowing through the valves increase when the total amount of water in the system remains the same?
Tell me what I’m getting wrong here.
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