Blinders

Alan Blinder has what looked like an interesting-looking essay in the New York Review of Books, "What's the matter with economics?" Alan has usually been thoughtful, the WSJ house liberal columnist, so I approached it hoping for well-reasoned argument I might disagree with, but be interested by and learn something from. And it started well, pointing out the many things on which economists all agree and policy does not.

Alas, then we get to macro. Something about stimulus sends people off the deep end.  One little quote pretty much summarizes the tone and (lack of) usefulness of the whole thing:

The great Milton Friedman of the University of Chicago, a favorite target of Madrick, may have been right or wrong; but he was certainly far to the right. Much the same can be said of several other economists cited by Madrick as representing the mainstream. For example, he quotes John Cochrane, also of the University of Chicago, as saying in 2009 that Keynesian economics is “not part of what anybody has taught graduate students since the 1960s. [Keynesian ideas] are fairy tales that have been proved false.” The first statement is demonstrably false; the second is absurd. People can and do argue over the macroeconomic views associated with the so-called Chicago School, but it’s clear that the views of that school are far from the mainstream.

"Demonstrably false" and "absurd" are pretty strong.

Am I wrong that graduate programs do not teach any Keynesian economics? I went to look at the Princeton University Economics Department graduate course offerings. Following up on the ones titled "macro," I found

Esteban Rossi-Hansberg: Econ 522 Topics in Macroecomics
Benjamin Moll: Macroeconomic Theory I (1st year PhD): Lecture notes. Syllabus 
                          Advanced Macroeconomics I, Economics 521 (2nd Year PhD)  Syllabus

Chris Sims:   Macroeconomic Theory 504

First reaction: Wow, Princeton has a great macroeconomics program. I think I'll lie about my age and apply as a grad student.

Second reaction: There is zero Keynesian economics anywhere in Princeton's graduate program. 

Alan: if you think it's "absurd" to state that nobody teaches Keynesian economics in graduate programs, you are revealing that you have no idea what goes on in modern graduate programs, including your own. 

(I may have missed some, and not all syllabi are publicly available. If ISLM is taught anywhere in Princeton's economics PhD program, by anyone other than Blinder himself, post link to comments or send it to me and I'll be glad to acknowledge it.)

Forget about "absurd" and "mainstream." Alan, can you provide any evidence that any PhD program at a top US Economics department teaches any IS-LM Keynesian economics at all?

(Lay readers may be a bit confused about the presence of a few (surprisingly few) "new-Keynesian" mentions in these references. "Keynesian" and "New-Keynesian" are as different as Ptolemaic and Copernican astronomy. Yeah, both are about the motion of the stars, but that's it. While one might excuse New York Review of Books readers for not knowing the distinction, that's not the point. Blinder, if he has read any academic papers in the last 30 years, should know the distinction. Krugman is clear on the distinction, frequently savaging new-Keynesians. If that's his excuse for writing this, Blinder either reveals that he does not know the difference between Keynesian-- IS-LM--and new-Keynesian--Woodford, etc.--or that he does not know what's being taught in his own graduate program. Take your pick.)

As for "mainstream," Moll's syllabus starts 

Books:
- Stokey, Nancy, Robert E. Lucas Jr. and Edward C. Prescott (1989), “Recursive Methods in Economic Dynamics”
- Ljungqvist, Lars and Thomas J. Sargent (2004), “Recursive Macroeconomic Theory” 

How many Nobel Prizes have been awarded for demolishing Keynesian Economics?  Lucas, Sargent, Prescott, Sims, Phelps, ... I may have missed a few. How many for anything supporting it? 0 that I can find. (Update clarification: For Keynesian economics, not to "Keynesian" economists.) 

And readers of this blog understand the difference between "right" and "free market" or "libertarian." I presumed Blinder knew the difference as well. In case you forgot, Milton Friedman wanted drug legalization, open borders, the end of the draft, and a few other anathema to the "right."

Alan goes on the Chicago attack again with

But what about the strong form of the EMH? This “bad idea” proved pernicious, just as Madrick says. The EMH (plus some financial engineering) gave Wall Street managers the tools with which to build monstrosities like CDOs (collateralized debt obligations) and CDSs (credit default swaps) on top of the rickety foundation of subprime mortgages—and helped give Wall Street salesmen (and rating agencies) the chutzpah to pawn them off as “safe” to credulous investors.

Alan, please go read Fama 1970 and find out what the definition of strong form EMH is before you get it wrong in print again. Understand that it has nothing to do with derivatives. And that Fama 1970 showed the strong form failed in the data! You're just embarrassing yourself in both cases, at least to academic audiences who understand this stuff.

But, wait a minute, where have I heard this before? Hmm. There's someone else who can't stop quoting the few paragraphs of my 2009 blog post (a really authoritative source, eh?). Where have I heard an attack against "Chicago" that is 40 years out of date? (Hint: Becker and Friedman are dead. Chicago now is Getzkow, Goolsbee, Shapiro, Rajan, Zingales, Kashap, Hust, Diamond, Sufi, Seru; Shimer, Uhlig, Alvarez, and sorry for leaving everyone else out.)  

Oh yeah, Krugman. New York Times Magazine. September 2009. 

Keynesian economics has been “proved false,” Cochrane, of the University of Chicago, says.

And so Chicago’s Cochrane...declared: “It’s not part of what anybody has taught graduate students since the 1960s. They [Keynesian ideas] are fairy tales that have been proved false. It is very comforting in times of stress to go back to the fairy tales we heard as children, but it doesn’t make them less false.” (It’s a mark of how deep the division between saltwater and freshwater runs that Cochrane doesn’t believe that “anybody” teaches ideas that are, in fact, taught in places like Princeton, M.I.T. and Harvard.)

(In case you missed it -- it was a long time ago -- my response. A beer at the AEA meetings if a blog reader can find any serious teaching of ISLM in MIT and Harvard's Ph.D. program too. Two beers if you're a PhD student and you weren't chuckling the whole time.)

Alan, (and Jeff Madrick): are you such lazy readers that you have even to plaigiarize your insults? Come up with something new already!  I have a whole blog to mine, plus a website, and dozens of economic articles! I'm sure you can do better than this.

I guess Krugmanism is contagious. Too bad.