[Editor's note: After this post was drafted Mr. Cochrane did appear in the pages of the WSJ, this time writing on going back to the gold standard. Read it here, and see if you can comprehend any logic or sense in the writing. We can't. And given Mr. Cochrane's track record recently as documented below, why would you expect to?
As for a critique of Mr. Cochrane's ruminations on a return to the gold standard, something last done in 1933, this Forum will leave that to others and take on a more challenging task. For example, The Dismal Political Economist has a new pistol and some fish swimming around in a barrel to shoot at.]
No one has really ever heard of
University of Chicago Professor John Cochrane, but he has
impressive academic credential, holding a Chair in the Department of Finance at
Chicago. He is also featured whenever conservative
editorialists need a highly credentialed economic analyst to criticize current
Democratic economic policy.
So Paul Krugman somewhat gleefully (as he is entitled to) points out how absolutely wrong Mr. Cochrane was when he was commenting on the stimulus. Basically what Mr. Cochrane was saying in 2009 was that the government deficit would lead to huge increases in interest rates and huge amounts of inflation.
We're not going to have deflation. That's a fundamentally different situation for everything else we're doing. In fact, as many people have mentioned, the danger now is inflation. And I would say it's a greater danger than most of the other people have said. Our danger now is a run on Treasury debt. It's not just can the Fed soak this stuff back up again, but can it soak this enormous amount of debt back up again when people don't want either money or Treasury bills or anything labeled "U.S. Government." The danger is not 1932; the danger is
massive run from Treasury debt. And then monetary policy will not be able
to do anything. You can fool around with interest rates all you
want. When people don't want Treasury bills or money you're stuck. Argentina
Gosh, pretty powerful stuff, pretty fearful stuff and at the time stuff that was quoted by all those Conservatives eager to strike down any economic stimulus program.
Of course, with the benefit of hindsight (if you don’t like people looking back at your predictions and seeing if they actually occurred, don’t make predictions) we now know that Mr. Cochrane was not just wrong, he was absolutely wrong. Inflation has been a non-event, and interest rates have been plummeting. The yield on
U. S. government 10 year notes is
like the lowest every.
With a normal person, such a mistake would likely send them away from the public spotlight to contemplate why what they thought was right was actually wrong. But for Conservative economists, this doesn’t happen. In their minds they are always right, and if the markets and events in the future prove them wrong, then those markets and those events are the ones that are wrong.
So look for Mr. Cochrane to continue to pontificate in Conservative circles, and look for him to never admit he was wrong. And if some time in the future, say around 2020 interests and inflation do increase look for him to proclaim vindication. After all he never says when the disaster will occur, so he has an open ended window.