Last week, I offered some reactions to Paul Krugman's New York Times magazine article. One of the economists coming in for direct criticism as a representative of the Chicago School was John Cochrane. Through the magic of the internet, he responds. One of my favorite passages:
If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. Seriously. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he really borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.
Read the whole thing.