Paul Krugman's New York Times magazine article on the failings of economics has John Cochrane of the University of Chicago really riled up. Professor Cochrane has written an attack on Professor Krugman, who he says "wants to be Rush Limbaugh of the Left." In between the economics and the press criticism, there are some valuable thoughts about policy of the sort we are interested in here. Professor Cochrane:
The case for free markets never was that markets are perfect. The case for free markets is that government control of markets, especially asset markets, has always been much worse.
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Good stuff, and fun to see the academics writing with verve and passion.In economics, stimulus spending ran aground on Robert Barro's Ricardian equivalence theorem. This theorem says that debt-financed spending can't have any effect because people, seeing the higher future taxes that must pay off the debt, will simply save more. They will buy the new government debt and leave all spending decisions unaltered.
