My colleague from anthropology, Jason Antrosio, sent me a link yesterday to an article on alternet about an article in Playboy (vicarious pleasures only around here). The alternet article is by Bill Black, a professor at the University of Missouri at Kansas City who specializes in white-color crime (preventing and prosecuting it, not engaging in it). He's widely respected by the "heterodox" economists he's writing about here. He exposed Congressional corruption during the Savings & Loan debacle of the 1980s, and he's said some very sensible things about the current crisis. Along the lines of, If you don't send people to jail for violating criminal statutes, then you just encourage them to keep breaking them, and that's not going to be good for the economy.
I haven’t read their specific work. I’m busy, and I try to read what is considered interesting and valid. ... They’re just not rigorous and don’t use modern mathematical tools. This business is a wide-open meritocracy. You have to distinguish between closed minds and a lack of quality. The perception is that this is 1969 stuff. Give me new data and new ideas.This is hilarious and sad. Math is a useful tool in economics, but it's not an end in itself. In their new book, Charlie Hall and Kent Klitgaard obseve that using math doesn't help much if you fundamentally misrepresent the world in the process of fitting it into your math, and I agree with them that this is what often happens in modern economics: reality has been sacrificed to mathematical tractability. Cochrane's approach is mathematical rigor applied to a simplistic notion of individual utility maximization, but clever and robust experiments have shown that human behavior is much more complex than that, in ways that invalidate many of the economic nostrums built on it. (Of course, another way to see that our behaviors are more complicated than straightforward individual utility maximization is simple introspection ... if you're not sociopathic.)
More worryingly from the standpoint of intellectual rigor, Cochrane reads what is considered interesting and valid. He doesn't read work that challenges the premises of his own ideology. The Modern Monetary Theory school centered at Black's own UMKC is making some very interesting points. Steve Keen has been (gasp!) using data to look at the role of debt in a fresh way--just not a neoclassical way, the sort of way that John Cochrane would "consider interesting and valid." I could go on ...
The funny part is what Cochrane gets wrong. Brad DeLong has done yeoman work the last three years documenting and refuting Chicago-style arguments that government spending can't have any useful impact on the real economy, as here and, at more length, here. Cochrane is arguing with a Krugman parable about a family taking out a mortgage for $100,000, thus increasing total demand in the economy. Cochrane says that if that family hadn't taken out the mortgage, someone else would have borrowed the money and spent it, which is simply ... not how money works. I don't agree with everything in Modern Monetary Theory, but they handle this one quite well: banks create money when they make loans; if people aren't taking loans, or banks aren't agreeing to make them, the money doesn't exist and the spending doesn't happen somewhere else. Of course, Cochrane doesn't read these unrigorous folks, but he could still see the same thing in pretty much any college-level macroeconomics textbook. As DeLong says, "This is Econ 1-level stuff."
But it's OK, because Cochrane is using the right math:
[T]he problem is that we don’t have enough math. Math in economics serves to keep the logic straight, to make sure that the “then” really does follow the “if,” which it so frequently does not if you just write prose. The challenge is how hard it is to write down explicit artificial economies with these ingredients, actually solve them, in order to see what makes them tick. Frictions are just bloody hard with the mathematical tools we have now.Cochrane may be very good at the logic once he gets it into mathematical form, but if he misunderstands the nature and function of money before he gets to the math, I have little confidence in what the math will end up telling him. (And note the indirect confirmation of Hall and Klitgaard's point: "Frictions are just bloody hard with the mathematical tools we have now." The implication is that we'll build models that we have the math to handle, not models that capture the parts of the world that we think are actually important.)
But the really funny part is what Cochrane thinks of people who don't read what they criticize. In the piece linked above, he faults Krugman for doing just that, and he comes back to the same thing two years later:
Really, what do you do with a guy who insults fellow economists, while admitting in writing that he doesn't even read the opeds and blog posts that are the cause for his insults (let alone their actual academic work, where ideas can be documented and defended)? He often doesn't even link or name the articles he's criticizing so his readers can decide for themselves! [emphasis in the original]