Recorded on January 23, 2023.
John Cochrane is the Rose-Marie and Jack Anderson Senior Fellow in Economics at the Hoover Institution and the author of a new book, The Fiscal Theory of the Price Level. In this wide-ranging conversation, Cochrane discusses the root causes of inflation, what we can (and can’t) do about it, the economists who influenced his thinking, and how his father inspired him to become an academic.
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Dropping Money from Helicopters: Economist John Cochrane on Inflation
Inflation is a topic that often sparks heated debates in the realm of economics, with various theories and strategies proposed to control and manage it. One concept that has become a subject of interest and controversy in recent years is “dropping money from helicopters.” This unconventional idea suggests that governments or central banks should distribute money directly to citizens as a means to stimulate economic growth and combat deflation. Economist John Cochrane, a prominent figure in the field, has expressed his thoughts on this concept and its potential implications.
John Cochrane, a senior fellow at the Hoover Institution, has delved into the debate surrounding the idea of dropping money from helicopters and its potential impact on inflation. Cochrane acknowledges that in theory, such a measure could temporarily boost consumer spending and decrease the risk of deflation by injecting liquidity into the economy. However, he argues that this approach has serious drawbacks and would ultimately lead to detrimental consequences in the long run.
One of the main concerns raised by Cochrane is the expectation that, on the individual level, recipients of money drops would not necessarily spend the funds immediately. Instead, they might opt to save or invest the money, reducing the intended stimulative effect. Additionally, Cochrane points out that in a rational economic environment, people would anticipate that such drops would result in inflation, leading them to adjust their behavior accordingly. This could include increased spending on goods and services before prices rise, or even hoarding goods as a store of value.
Cochrane draws attention to the fact that dropping money from helicopters is a very visible and politically charged measure. This could have significant consequences for public perceptions and expectations of future economic policies. He argues that while money drops might elicit positive short-term reactions, they have the potential to undermine the credibility of central banks and governments by creating uncertainty and unpredictability in policy decisions. This, in turn, may lead to greater economic instability and hinder long-term growth.
Another concern raised by Cochrane revolves around the unintended distributional effects of dropping money from helicopters. As with any economic policy, there will inevitably be winners and losers. Critics argue that individuals or groups who are better positioned or have easier access to funds may benefit disproportionately from this measure, exacerbating inequality.
Furthermore, Cochrane emphasizes the importance of considering the long-term consequences of such policies. Dropping money from helicopters, while potentially providing a short-term boost, does not address the fundamental underlying causes of economic issues. To create sustainable growth, policymakers need to focus on structural reforms aimed at improving productivity, reducing barriers to entry, and fostering innovation.
While the idea of dropping money from helicopters may seem enticing in its simplicity and apparent impact, Cochrane’s analysis highlights the potential dangers and drawbacks. He emphasizes the need for a comprehensive and multifaceted approach to economic policy, one that addresses the root causes of economic challenges rather than relying on short-lived stimulative measures.
As the debate surrounding the efficacy of unconventional monetary policies continues, economists like John Cochrane play a vital role in providing critical analysis and valuable insights. While dropping money from helicopters may capture the public’s imagination, Cochrane’s perspective urges policymakers to consider the long-term effects, unintended consequences, and potential risks associated with such measures.
What a gift. Cochrane breaks down the impact of monetary transaction rate on our economy.
Given all the new information and theory I picked up, this is the best hour and 15 minute lecture on economics I’ve ever heard.
It’s great seeing John get his own interview. I just finished watching it for the third time, as some of his ideas were unfamiliar to me. But I think I understand now and I’d like to say this is the best presentation on a new economic idea I’ve ever heard.
This is so good!
How, John Cochrane, are we shooting ourselves in the foot? Why won't you name the ideology now running rampant in the United States and wrecking academic departments and corporations that's making ourselves shoot ourselves in the foot in innovation, education, and wealth creation, and which is the party that's nurturing, advocating for, and funding this plague? The answers are obvious, and calling it "well, that is a political question" is a coward's dodge.
But in a worldwide economy, to try to convince the entire world that the amount of government debt doesn't matter, is impractical and impossible. His theory is based upon what people think about how much government debt is too much, so it is debunked by the clear conclusion you are not going to get the entire world on board with the idea that the amount of gov't debt doesn't matter. Nice academic theory that just winds up being irrational and an excuse for him writing a book.
Great interview.
Even Professor cannot cook rice by talking
America made what China is now. And china loving politicians this marxist-radical left machine that hates capitalism for their green anti-capitalist agenda really destroys americas institutions.
Printing money. Output is falling.
I have no idea what the "Chicago tradition" means.
Everyone here watching this program has now been enlightened by the revelation the U.S financial system is nothing more then a giant prozy.. the fed is neither reserve nor is it a bank .. I don't know any federal agency that pays out interest to its bond holders
What is the impact on inflation/deflation when fiat currency leaves the “closed loop” of the classic banking system by diverting into the cryptocurrency system?
What we need is more economists.
We haven't QUITE got a big enough mess.
BTW the red has 700+ PhDs on the payroll; how's that working out?
Excellent interview. Prof, Cochranes' intelligence plus his personality and vitality, plus Robinsons interview style create an informed and intelligent interview. Thank you Hoover Institute.
The Biden price hike
Just build a God dam car that poor people can afford on the supply side
Over the many years at the Hoover Institute, Peter Robinson has proved to be one of the most intelligent men on the planet.
So higher retirement ages and more bitcoin millionaires. I'll pass
FACT: you are more likely to die from a bale of money landing on your head than #COVID19
FACT: you are more likely to die by untested politicians at war than a bale of money or marijuana.
if given the choice, take the reefer.
John has outlined how important future productivity determines net present value of an economy. As long as the future value discounted back to the net present value exceeds results in a positive rate of return then the economy will grow.
The broad-based Standard & U.S. consumer confidence has sunk to record lows, thanks mainly to inflation. Retail spending, home-building, and manufacturing output all declined and those who drive the U.S. economy, are starting to cut back on discretionary purchases, such as appliances and services. Regardless of our market conditions, however, we should continue to promote savings and smart investments. How can I profit from the present market turbulence? I'm still debating whether to sell my $125,000 ETF/Growth Stock portfolio.
This is well known by everyone. When it became apparent that the COVID pause to the economy was much less than planned, the excess money with no increase in output chased prices higher.
The risks of stimulus were well understood and knowingly taken by both the Fed and Congress.
This has been well understood since Keynes.
I do not understand economics but this man makes its sounds so wonderful.
Taking money in wheeledbarrels to the grocery store.
It's quite bold to claim that we don't need to limit the creation, formal recognition, and trade of poorly capitalized debt instruments in the midst of the worst stagflation since the 1970s and growing systemic weakness across the global banking system.
Peter, you never allowed him to finish his answer like you promised
It is certainly no wonder why China has gotten caught up with technology when US capitalist pigs thought they would make lots of money on cheap Chinese labor. The US capitalist pigs relocated lots of factories into China, putting lots of US workers out of work. The US also let many Chinese business people, high level employees, into the US to work in US factories. These Chinese workers, and businesses relocated to China, all leaked high tech company secrets. I worked for a high tech company, years ago, and was sent to China to install an integrated circuit manufacturing machine. I didn't have much of a choice..it was do it or get fired! Back in the US, I noticed many Chinese working in management. One high tech building, next to ours, had nothing but Chinese employees… coming and going all day!
This guy convolutes realities packaging them in complex mathematical models :))))
The worst combination of disciplines Physics and Economics . Both areas think they know about all the others. Physicists telling you about the economy and economists telling you about the environment , insufferable.
This is about as good as it gets when discussing the paradoxes that exist in the world of economics and finance. Great discussion, John is a gifted speaker of the complex.