John Cochrane's Talk at Hoover
By David Henderson
At his Friday talk at Hoover, University of Chicago economist John Cochrane went a mile a minute to try to fit a lot into 10 minutes. He succeeded and the talk was outstanding. But because he went so fast, my notes are less complete than for Greenspan and Shultz. Here are a few highlights from his talk.
. The Europeans have turned a simple sovereign debt crisis into a fiscal crisis, a monetary crisis, and a political crisis.
. Dodd-Frank doubled down our bets on the regime of “guarantee, regulate, and bail out.”
. The big question: what financial system will we reconstruct from the ashes?
. Nobody ever ran on a mutual fund. [He didn’t say why, but the reason is clear: the prices at which you can take your money out of mutual funds adjust. Of course, there was the whole “break the buck” episode with money market funds in 2008, but I think, and I’m guessing John does too, that some of the money market funds, without the government backing they got, would have broken the buck.]
. Why are we stagnating? I don’t know.
. Look at the various “solutions” to the stagnation:
(i) “Jobs” bill. Do we really have 9% unemployment because we stopped building roads and schools?
(ii) Raising the capital gains tax rate. Do we have high unemployment because the marginal tax rates on capital gains are too low?
(iii) Re QE3 or QE5, “I’ve lost track.” Do we really have 3% mortgages because we don’t have enough credit. [Hmmm. Here I’m wondering if he has taken account of the difference between nominal and real interest rates.]
. People, including economists, point out that recessions follow financial crises. But why? Could it be because of bad policies that governments adopt during the financial crises?
. “The macroeconomy is a garden, not an army.” [Very Hayekian, Pete Boettkian.] You need to weed a garden, making sure property rights are secure, etc.
. Comparing the evidence on the effects of fiscal policy to the evidence on global warming, “Our scientific evidence for fiscal stimulus is on the level of ‘Hey, it’s hot outside.'”
. Governments should respond by sticking with the easy, simple stuff that works and then get out of the way. [I think he mentioned my two pet solutions: end or reduce the minimum wage and don’t extend the unemployment benefits to 99 weeks, but this is my imperfect memory. My notes don’t reflect that.]
I’ll do one last post today or tomorrow on the Q&A.