Filippo Gaddo, Managing Director at MAP and SPE member, held a discussion with John Cochrane, the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution. John writes extensively on monetary and financial economics, the relationship between deficits and inflation, the effects of monetary policy, and the fiscal theory of the price level. He maintains the Grumpy Economist blog, and can be found at: ⁠www.grumpy-economist.com/⁠ and ⁠www.johnhcochrane.com/⁠.
John and Filippo started the conversation reviewing the post-pandemic inflation surge and what factors - whether supply-driven or demand-driven - led to the highest inflation level in 40 years and what then caused inflation to decelerate over past year or so - though it still persists above central bank targets. John outlines the Fiscal Theory of the Price Level and how it applies to the latest inflation episode: fiscal policy, deficits and the expectations of future deficits and the capability of governments to repay them are the driver of higher inflation and explain the recent prices dynamics. You can read John’s analysis ⁠here⁠: or by reading his book available ⁠here⁠ John also considers the role of monetary policy in the past, the performance of the Fed (spoiler alert, the Fed does not get good grades..) and what to expect in the future.
In the conversation John and Filippo also explores alternative monetary frameworks (due to be considered in the upcoming Fed’s review) and whether they could or would be better than the current framework “FAIT” - with a notable mention of previous guest David Beckworth’s favourite NGDP targeting. But the conversation is not only focused on monetary policy or FTPL - it touches also on expectation of future growth, impact of Trump policies and what impact tariffs may have on inflation (with a primer on the difference between inflation and price levels), whether tariffs, income or consumption taxes are more ‘efficient’ and finally what drives productivity and whether we are looking at a new innovation boom or whether we are indeed in a Robert Gordon’s world of permanent innovation ‘famine’. Filippo and John are - luckily - moderately optimistic, if the regulatory state let it happen, that is.
It is an eclectic and engaging conversation that you won’t want to miss.
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the CATO Institute. Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago’s Booth School of Business, and earlier at its Economics Department.
Cochrane earned a bachelor’s degree in physics at MIT and his PhD in economics at the University of California at Berkeley. He was a junior staff economist on the Council of Economic Advisers (1982-83).
John Cochrane frequently contributes editorial opinion essays to the Wall Street Journal, Bloomberg.com, and other publications. He maintains the Grumpy Economist blog and is a regular guest of the weekly Hoover Institution broadcast, ‘Goodfellows’.