Recently, I had the opportunity to cross the path of one of our worst “public intellectuals” John Cochrane of Booth (University of Chicago School of Business School).
With tenure, Cochrane is highly paid because he supports the Chicago/Booth political brand with his writing and public appearances. This attracts "investment" in Booth from the wealthy who are interested in preserving and expanding their political power and a higher salary for Cochrane who also enjoys the benefits of the wealthy who overtly attempt to influence his writing and public appearances with fine wine, expensive meals, and access to public officials.
Feynman on learning from experiment or observation when we are wrong.
Cochrane is an inflation hawk who for the last 5 years has preached a brand of non-fact based economics in support of the GOP's political agenda.
Cochrane pretends that his economics is science, wrapping it in math and models, but omitting to mention that his economics has been disproved by scientific method. Feynman explained:
If it disagrees with experiment [or observation], it's wrong. In that simple statement, is the key to science: it doesn't make any difference how beautiful your guess is; it doesn't make any difference how smart you are, who made the guess, or what his name is—if it disagrees with experiment, it's wrong, that's all there is to it.
Source. Richard Feynman, Seeking New Laws, Project Tuva
Cochrane's World view, as summed up by Michael Pettis, is that only by increasing savings through wealth inequality, leading to "trickle down," will lead to long-term economic growth.
There is as you know a political divide between economists. One group focuses primarily on managing demand to prevent the underutilization of labor and capital (often called Keynesians). The other insist that it is only by increasing savings, which usually means increasing wealth inequality and allowing the benefits of growth to "trickle down", that we can generate the increases in investment that drive long-term economic growth (often called supply-siders, or Austrians, although for some reason true Austrians seem to loathe supply-siders)This raises the question, do we have insufficient savings, today?
Given that demand raises the price---the interest rate---if we had a shortage of savings we would have to see evidence of demand for savings, but there is none. Instead, the price for savings has been declining for 50 years.
This view is confirmed by the yield on Ten Year Treasuries:
So, in sum, we now that Cochrane's underlying premise, his world view is wrong.
This is no to say that there are not times and places where there has been what appears to be a shortage of savings (or a suitable substitute), but in the United States, now and for the past 50 years, we have not had insufficient savings.
The late 20th Century gave us three great economists, Soros, Buffett, and Munger. Why no mention of academic economists? Because none had sufficient skin in the game and most are incredibily siloed.
Here is an admission by Richard Posner, the most important Law and Economics advocate of Chicago/Booth:
Until last September, when the banking industry came crashing down and depression loomed for the first time in my lifetime, I had never thought to read The General Theory of Employment, Interest, and Money,…It was a work of macroeconomics–the study of economy-wide phenomena…Law, and hence the economics of law…did not figure largely in the regulation of those phenomena. Having [now read The General Theory], I have concluded that…it is the best guide we have to the crisis.- Richard Posner, Judge, U.S. Court of Appeals for the Seventh Circuit; Senior Lecturer of the University of Chicago Law School. September 23, 2009
Why did John Cochrane never walk down the hall and visit with Judge Posner?
If the most cited legal scholar of the 20th century, a poster boy of the so-called Law & Economics movement, can preside and preach for over thirty years without reading Keynes' magnum opus, something has gone terribly, terribly awry. Economy-wide phenomena are, in fact, legal phenomena. "Interdisciplinary" law school curricula that ignore them are woefully impoverished.
Similarly, economics schools are woefully impoverished.