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Hoisted from the Archives:
John Cochrane's Claim
s
That
a
Recession Would Be a
“
Good Thing
”
Deserves Some Kind of Award...
J. Bradford DeLong
Economics and Blum Center, UC Berkeley; WCEG; and NBER
http://bradford-delong.com
| @delong |
delong@econ.berkeley.edu
June 19, 2019
Hoisted from the Archives
:
The fact is
that by the end of 2007 the construction
sector had rebalanced: there was no
excess of people pounding nails in
Nevada—even if you did believe the false
theory that recessions have recessions do
the "necessary work of rebalancing", there
was no rebalancing work to be done after
2007. Even a quarter-competent
Schumpeterian who kept even half an eye
on the data should have been able to
recognize that
…
To: @johnmlippert: If I may beg a small
slice of your attention...
I am tracking down John Cochrane's
claims that
:
(i)
in your December 23, 2008 article
you were "only... on a hunt for
embarrassing quotes",
(ii)
he had "spent about 10 hours patiently
trying to explain some basics" to you,
and
(iii)
you took him out of proper context
when you wrote: "'We should have a
recession', Cochrane said in
November, speaking to students and
J. Bradford DeLong
Cochrane Award
said in November, speaking to
students and investors in a conference
room.... 'People who spend their lives
pounding nails in Nevada need
something else to do'."
Do you
b
y chance remember the larger
context of Cochrane's "pounding nails"
comment, and do you have any idea why
he now claims that you took him out of
context? Or what he thinks the proper
context would have been?
I would be grateful for any light you can
shed on this
….
John M. Lippert
:
“
Hi Professor DeLong.
“
Thanks for your note. Professor
Cochrane’s complaint is something of
which I became aware several months
after we published our story in 2008....
“
The bottom line is that Bloomberg did
not respond to Cochrane’s comments. He
never sent them to us, despite my request
that he do so.
“
When we became aware of his
complaint, we saw no reason to make a
correction. Cochrane made the ‘pounding
nails’ comment at a Chicago Booth forum
at the Gleacher Center in downtown
Chicago in November 2008. It was part of
an ongoing lecture series, as I recall. It
was kind of a big event, with a couple
hundred people. So they may have a
recording that you can access.
“
Good luck with your inquiries.
”
Just FYI, if I were John Cochrane I would
not characterize my 2008 CRSP Forum
Keynote as something "I did not write...".
And I would not characterize accurate
quotations from it as:
an attribution, taken out of context, from a
http://bloomberg.com
article, written by a
reporter [John Lippert] with whom I spent
about 10 hours patiently trying to explain
some basics, and who also turned out only
to be on a hunt for embarrassing quotes
…
John Cochrane
: How Did Paul Krugman
Get It So Wrong?:
“
As one little example,
take my quotation about carpenters in
Nevada
….
Krugman writes:
‘
And
Cochrane declares that high
unemployment is actually good: “We
should have a recession. People who
spend their lives pounding nails in Nevada
need something else to do.” Personally, I
think this is crazy. Why should it take
mass unemployment across the whole
nation to get carpenters to move out of
Nevada?
’
“
I did not write this. It is an attribution,
taken out of context, from a
http://
bloomberg.com
article, written by a
reporter [John Lippert] with whom I spent
about 10 hours patiently trying to explain
2
of
4
J. Bradford DeLong
Cochrane Award
some basics, and who also turned out only
to be on a hunt for embarrassing quotes.
“
Nevertheless, I was trying to explain how
sectoral shifts contribute to
unemployment. I never asserted that ‘it
takes mass unemployment across the
whole nation to get carpenters to move out
of Nevada’. You cannot even dredge up an
out-of-context quote for that monstrously
made-up opinion. What is the point in
conducting debate this way?
“
I do not think that Krugman disagrees
that sectoral shifts result in some
unemployment, so the quote actually
makes sense as economics. The only point
is to make me, personally, seem heartless–
a pure, personal, calumnious attack, which
has nothing to do with economics
…”
Paul Krugman
(2009): How Did
Economists Get It So Wrong?:
“
Milton
Friedman certainly never bought into the
idea that mass unemployment represents a
voluntary reduction in work effort or the
idea that recessions are actually good for
the economy. Yet the current generation of
freshwater economists has been making
both arguments...
“
Thus Chicago’s Casey Mulligan suggests
that unemployment is so high because
many workers are choosing not to take
jobs:
‘
Employees face fi nancial incentives
that encourage them not to work...
decreased employment is explained more
by reductions in the supply of labor (the
willingness of people to work) and less by
the demand for labor (the number of
workers that employers need to hire).
’
“
Mulligan has suggested, in particular,
that workers are choosing to remain
unemployed because that improves their
odds of receiving mortgage relief.
And Cochrane declares that high
unemployment is actually good:
‘
We
should have a recession. People who
spend their lives pounding nails in Nevada
need something else to do
’
. Personally, I
think this is crazy. Why should it take
mass unemployment across the whole
nation to get carpenters to move out of
Nevada?
“
Can anyone seriously claim that we’ve
lost 6.7 million jobs because fewer
Americans want to work?
“
But it was inevitable that freshwater
economists would fi nd themselves trapped
in this cul-de-sac: if you start from the
assumption that people are perfectly
rational and markets are perfectly
effi cient, you have to conclude that
unemployment is voluntary and recessions
are desirable.
“
Yet if the crisis has pushed freshwater
economists into absurdity, it has also
created a lot of soul-searching among
saltwater economists. Their framework,
unlike that of the Chicago School, both
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J. Bradford DeLong
Cochrane Award
allows for the possibility of involuntary
unemployment and considers it a bad
thing. But the New Keynesian models that
have come to dominate teaching and
research assume that people are perfectly
rational and fi nancial markets are
perfectly effi cient. To get anything like the
current slump into their models, New
Keynesians are forced to introduce some
kind of fudge factor that for reasons
unspecifi ed temporarily depresses private
spending. (I’ve done exactly that in some
of my own work.) And if the analysis of
where we are now rests on this fudge
factor, how much confi dence can we have
in the models’ predictions about where we
are going?
“
The state of macro, in short, is not good.
So where does the profession go from
here?
…"
<
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>
<
https://www.bradford-delong.com/2019/06/hoisted-
from-the-archives-john-cochranes-claim-in-late-2008-
that-a-recession-would-be-a-good-thing-deserves-some-
kind-of-aw.html
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