All that ails us

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Cochrane says what’s right and wrong with Raghu Rajan’s Foreign Affairs essay

I agree with Rajan’s diagnosis that the world faces a crisis due to the increasingly high returns to skill and the apparent weakening of our ability to deliver basic education. However I more strongly agree with Cochrane that Rajan’s suggested cures are likely to range from too mild to counter-productive.


  1. I’ve Instapaper’d Cochrane’s post. Re Jim’s panning of SS, I will get back to you when I get some time.

  2. Noah Smith is much better as usual on Rajan and writes about Cochrane in a psot before the one on Rajan.

    1. actually, i dislike this. RR’s book was pretty well received, and though i do not agree with all of it, i think it’s hard to just dismiss his inequality/credit argument like he has not done the work. He has done the work. Also, he was at the fund to see how it was unfolding between 2003 and 2007. In 2005, he warned it was about to melt down (confronting Greenspan, none the less).

      in any case, i don’t think that this is RR’s main point. his main point is about the returns to education. that’s what is driving the increase in inequality – which he argues is the cause of the credit boom.

      disagree if you like, but it’s a coherent view of the facts.

      1. Agree 100% with you on this ricardo. I thought it was a pretty logical extension of his argument as to why stimulus wont work and it simply links back to the fundmentals…if your workforce isnt educated / skilled enough then you will have problems with growth. Spending money in a hope to stimulate the economy when there are fundamental problems that should be addressed (and are not being addressed) is silly.

    1. i am much more on board with TC’s judgement of the reactions. For me, the main bottom line is that we have to do something about education.

  3. Here is another from Mike Konzal.

    Sorry I am am kinda sick of people asserting something without evidence. Noah smith writes a little about this today.

    There is no evidence whatsoever for large scale unemployment being structural.

    1. Well, there is a good deal of evidence. Folks have different views of it. I think SF Fed Williams gave a very balanced exposition of the various view in the speech i linked (well, it is the one i agree with).

      Sent from my iPad

  4. I don’t think you are reading him right.

    A temporary increase is not structural.

    if the unemployment rate is higher structurally then the NAIRU will rise permanently until fixed.
    This cannot fixed in the short term.

    This means wages rise earlier than previous times as does inflation and thus interest rates.

    It is economic flim flam.

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