Cochrane’s riposte

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Cochrane says you cannot repeal the laws of arithmetic. If the real value of your debt is too high, you must do painful fiscal reform, default, or inflate it away.

9 comments

  1. Some muddy waters because it is card-carrying Chicago economist Scott Sumner who has pushed for monetary stimulus through NGDP level targeting, and claims Friedman would have supported him. Micro and entitlement reform is always a good idea but the US has a cyclical demand shortfall problem at the moment and balancing the budget or fixing the supply side will not get unemployment down from 8% to 5%, or not over any reasonable timeframe.

  2. Some muddy waters because it is card-carrying Chicago economist Scott Sumner who has pushed for monetary stimulus through NGDP level targeting and claims that Friedman would have supported him. Micro and entitlement reform is always a good idea but the US has a cyclical demand shortfall problem at the moment and fixing the supply side or balancing the budget will not bring unemployment down from 8% to 5%, or not over any reasonable timeframe.

  3. Some muddy waters because it is card-carrying Chicago economist Scott Sumner who has pushed for monetary stimulus through NGDP level targeting and claims that Friedman would have supported him. Micro and entitlement reform is always a good idea but the US has a cyclical demand shortfall problem at the moment and fixing the supply side or balancing the budget will not bring unemployment down from 8% to 5%, or not over any reasonable timeframe.

    1. Cochrane argues that at least some it is supply side in this post. Or at least that a big part of the solution is on the supply side.

      I am not totally certain, but i do have the sense that the recent hard times have begat some poor policy, particularly in the US.

  4. There are times Cochrane gives the impression he simply doesn’t understand basic macro-economics.
    He certainly has never herd of Japan for example.

    1. That is sort of his point isn’t it? Something has to give eventually but it is hard to know when.

      I think it is good to remember that classical macro is the long run.

      I am quite sure he’d score well on a macro 101 paper :)

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