The INOMICS Questionnaire: Fratzscher v Cochrane

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By William Pearse

05 July 2018

Esteemed economist, blogger and friend of INOMICS, John H. Cochrane, kindly took time out of his busy schedule to take part in our Handbook questionnaire. However, this was no regular questionnaire, far from it. At its helm, assuming the role of quizmaster was none other than Mr Marcel Fratzscher: president of the DIW Berlin, and one of Germany’s leading voices in macroeconomics. Such is the reputation of these heavyweights we dubbed the encounter ‘Fratzscher v Cochrane’ – our personal nod to the pair’s professional standing.

What unfolded proved illuminating, often personal, and frequently amusing, the dialogue shedding light on the inner workings of the enigma that is the ‘economist’s mind’. Ranging from the trivial to the truly insightful, the following is an essential read for anyone even vaguely interested in the field of economics. Put the kettle on, pull up your favourite chair and enjoy.

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the INOMICS questionnaire

Marcel Fratzscher: What is your favourite place on earth?

John H. Cochrane: I love lots of places. But if I have to choose one, Florence, which combines beauty, history, and for me a bit of nostalgia.

What alternative occupation would you want to have if you had a free choice?

I have a free choice! Perhaps you mean the chance to make alternative human capital investments? Given my talents, and my many limitations - there are lots of things I’m no good at, and I know to avoid tasks that require them - I have to say I’ve pretty much maximized. I started in aeronautical engineering and then physics, and designing gliders or being a physicist still has a romantic appeal. But I know it wouldn’t have turned out as well as this has.

What is the virtue you appreciate the most?

Intellectual honesty and ethics. And these are the virtues that when absent in our profession bug me the most.

Your all-time favourite figure in economics?

Too many to name. Bob Lucas, Gene Fama, Lars Hansen have been huge influences and I admire them a lot.

Your # 1 economics blog?

Grumpy Economist! Seriously, I read Marginal Revolution most, and follow its links.

Your ideal student?

Smart, self-directed, thinks big but achievable, takes what is useful in my feedback and ignores the rest.

What should be done to address a gender bias in research in economics?

That is a big and important question that I can’t fully answer in a little questionnaire. I don’t think the question as stated is correct - I don’t perceive “a gender bias in research in economics,” whatever that might mean. There is a huge problem that women, especially married women with children, fall out of the profession at such a rate that there are almost none of them in the ranks of tenured and chaired professors at major universities. A lot of that is cultural. I’m brewing a long grumpy post on it, but it’s a delicate issue so I’m taking my time.

What is the most misguided research agenda in economics?

Part of my “ethics” virtue above is that one should not be snarky about alternative approaches, and one should not criticize research agendas one does not know well. That said, I’ve had my differences with Keynesian and new-Keynesian research, and some behavioural research. Old Keynesian seems to want to keep alive a quasi-religion that makes very little actual economic logic, and failed utterly in contact with the data, at least to the extent that a quasi-religion can ever fail. New-Keynesian is an admirable program, but I think it went wrong with the “active” monetary policy idea instead of fiscal theory. If you look hard at “active” money in those models it just seems looney. That’s expost hindsight - the people involved are tremendous researchers and figuring out what equations really mean is as hard in economics as in physics. But it’s time to move on. The idea “let’s put psychology in economics” is a good one, but a lot of the research seems stuck at ex-post storytelling, an interpretive rather than scientific approach, very small effects, and endless claims that someday this is going to really pay off.

What is the most promising current research field or issue in economics?

Mine of course! Fiscal theory of the price level and risk aversion at the source of business cycles and finance. Seriously, a rule I tell grad students: don’t listen to old guys like me for direction. In the past, great new research fields have almost come despite our contrary advice. Intellectual arbitrage has also paid off well in the past, and clearly, the young stars are using new computational and internet data power to make a lot of progress.

Where does economic research have the most influence on policy-making?

In my view, in the broad cloud of ideas, not in day-to-day analysis. In a tax bill, say, there will be piles of competing studies, to say this or that tax makes this or that person $402.57 better or worse off. I think this has very little effect. I think economics is most effective in the very important broader circle of ideas. Do people - voters, op-ed writers, newspaper reporters, etc. - understand that when a Chinese company sells us something that’s good for us? Do they understand that marginal taxes distort behaviour? When they see houses that are too expensive do they understand that “we need to let people build more houses” not “we need to pass a lot of taxes to subsidize housing” Do they understand that rent controls will kill the housing market? If people at large understand these things, policy will follow. If they don’t, no amount of enlightened politicians will ever get us anywhere. Politicians are largely smart and well-intentioned people. But they can’t go where their voters do not want them to go.

On what issues should policy listen more to economists?

I would say all issues! Except that economists (other than me!) seem to offer pretty lousy, and often politically motivated advice. Sorry, we’re not that great. Being good at research does not mean one is good at crafting policy solutions. Being smart is different than being wise. Policy needs basic economics, and clear wisdom about just how little we actually know. Researchers tend to suffer a lot of overconfidence bias, and are all excited about their latest idea and ready to unleash it on the poor unwitting taxpayer. We might be best in the role of devil’s advocate - here is why your latest idea will fall apart.

What is your career advice to a young economics researcher?

Take yourself and your work seriously. Don’t play games. It’s not about getting published or getting this or that job or promotion or impressing people with technique. It’s about writing things that people care about, in the simplest most transparent and honest way. Treat others as you wish to be treated.

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