Monday, September 14, 2009

Cochrane on the state of macro and finance

As was to be expected, Greg Mankiw didn't stop at posting Eichengreen's link (see my previous entry), but found a different and, from some angles, much better one, this one written by John Cochrane. Here is a link to his post, here is a link to Cochrane's essay (NB: it is an MS Word document, .doc format and all), and here is a link to Cochrane's news page, which includes the essay (and where he asks readers to link to as he may edit it and change its location).

Cochrane's article is simply beautiful. It reminded me why I went into econ to start with. For real. If you are interested in understanding where econ stands and have not been exposed to a doctorate in it, but are willing to spend the time trying to get some nuance (as opposed to Krugman's caricatures), read it.

It is much more detailed about the state of macro and finance than Eichengreen's, while lacking the healthy level of mea-culpa in the latter. I see it as follows: the state of econ, including macro and finance, is fine, thank you (Cochrane), but given incentives, some economists were not introspective enough and joined other agents who, given their incentives, contributed to the bubble and the current crisis.

Together, they are what the NYT should have published.

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Thursday, September 10, 2009

Barry Eichengreen as counterweight to Paul Krugman's NYT piece?

No, I'm not dead nor have I been spirited away. And no, I didn't give up blogging. Instead, I've been blogging quite frequently about current economic issues in the US (ironically, being a micro econ, mostly about macro... well, it used to be my job a long, long time ago) here. Warning: it is in Spanish... and a tribute to "they all return to their roots" cliche: the blog is hosted by the think tank / consulting group I used to work for in Peru (yes, Peruvians are interested in the economic comings and goings of the US).

'Nough said.

Point of this entry is to have a place to keep handy a link.

You see, I'm sure y'all have heard about the article / shock-piece Paul Krugman recently published on the NYT, a rather lengthy piece of... well, to call things what they are: a rather selective and I dare say inaccurate re-writing of the history of ideas of economics, in line with his agenda to... what? Re-interpret and resurrect Keynesianism? Settle old scores? Gain popularity among the wide, non-econ public, and political points in some camps?

Just like the Bush admin tried to do about everything, just like it is happening now with the causes of the crisis and health care reform, Paul has fallen into the game of finding evildoers to explain away the problems of the world. It is worrisome, coming from such a smart guy.

C'mon people: policy issues are nuanced, the causes (and ways out) of the crisis are nuanced, health-care reform is nuanced... What isn't that is interesting and worth pondering? The infantile effort to reduce everything to a search for evildoers was stoopid then and it is not any smarter today. It does a disservice to our effort to understand how we got somewhere and how to prevent it from happening again.

We will lynch economists or financiers or insurers or pharma researchers or... And, with all the incentives still in the wrong place, it will all happen again.

So the popularity of Paul's piece was rather depressing. And that is why, when I remembered this little piece, I couldn't stop myself from linking to it.

It is old (end of April), but it is well-written and much more accurate (and, yes, nuanced) than Paul's. Rather than looking for bugbears in the dark, it... well, I'll let you read it. It is written by Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley. Here it goes:

The Last Temptation of Risk

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