Interviews with Fama and Cochrane

The New Yorker had some thoughtful interviews with two leading financial economists. Fama is here, and John Cochrane is here.

From Fama:

There were some people out there saying this was an unsustainable bubble…
Right. For example, (Robert) Shiller was saying that since 1996.

I would add, Shiller didn't say there was a housing bubble in 2006. Specifically, he said some the recent increase in housing prices was unsustainable, and some markets might experience a decline in housing prices. That was entirely consistent with the disastrous assumption that nationwide housing prices will not fall, and has somehow turned into a clear call of an imminent market correction (and Shiller deserves some moral blame for not correcting this common statement because it distorts reality in his favor at the cost of rewriting the past).

Cochrane has a few interesting notes, I especially liked his general equilibrium take on macro, noting

Possibly, but it’s not obvious how “stimulus” is going to help this recession. Think about an unemployed accountant in New Jersey, fired from a big bank. How is going to build a road in Montana going to help him? Keynes thought of a world in the nineteen-thirties where labor was more amorphous labor. If you hired people to dig ditches, that would solve the unemployment line in the car industry. We have very specialized labor, and just hiring people doesn’t resolve the problem. Somebody who lost their job in a bank—building more roads is not going to help them.

Meanwhile, Joe Stiglitz has been praising the Venezuelan model of development:

Joseph Stiglitz, a Nobel economics laureate visiting Venezuela, said developing nations must strike a balance between public and private control of the economy.

After meeting in the presidential palace with Venezuelan leader Hugo Chavez, Stiglitz praised the South American country's success at distributing its oil income among citizens. He urged the government to ensure its economic policies are leading to sustainable growth