Macroeconomics wars from the perspective of the totally ignorant by mattsteinglass
September 17, 2009, 2:48 am
Filed under: Uncategorized

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.


2 Comments so far
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Your not getting anything wrong …Krugman is talking about money velocity (your speed though the system) ….Cochrane’s phrase is economically silly but sounds good – thus it’s popularity among those who think social sciences like economics is really just a narrative game…his (Cochrane’s) real point is about who “owns” the water system in question – he believes it is rich people (the primary actors in the market) while Krugmen believes it is government (the primary regulator of the market) …both are somewhat wrong in a democracy …which side is dominate at any given time is actually up to the voters.

Comment by davidwold

This sounds right to me, but I’m about as much of a layman as you. If it is not right, then I’d like an explanation that said (1) what’s wrong with this and (2) how to fix the hydraulics so they are a correct metaphor.

This does not seem like too much to ask. I’m disappointed there aren’t comments from experts yet.

Comment by jedharris

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