My Blog-U-Ment With John Cochrane or Et tu, Ken Duda?

A Benjamin Cole post

I am just a pundit, and John Cochrane is the University of Chicago economics professor invited to give presentations to prestigious Federal Reserve Board conferences.

So, when I started a (friendly) blog-u-ment with Cochrane, I pondered if it was the pixilated equivalent of an alley-fight with Mike Tyson. That was bad enough.

Then Silicon Valley notable and emerging Market Monetarist presence Ken Duda joined in…on Cochrane’s side.

This looked bad.

So? I Have Some Big Boys Too

I was just about to turn tail…when two buddies of mine showed, Mr. MV=PT and Mr. Phillips Phlat-Line.

So how did this econo-rumble start?

Cochrane posited recently on his blog that the Phillips Curve is dead (the trade-off between inflation and unemployment), and ergo the Fed should target 0% inflation, or better yet, 2% deflation.

I wrote a comment on Cochrane’s blog that the Phillips Curve is not dead, but has become the “Phillips Phlat-Line.” See this chart:


Verily, eyeball the chart above, and you see about a 1% decline in inflation associated with every 5% increase in unemployment. That is how it charts out. The Phillips Phlat-Line is a trade I say take—but as in, endure a 1% increase in inflation, and cut unemployment by 5%, not vice versa. The vice-versa trade is known as the “Fisher-Plosser Econo-Death Grip.”

Cochrane’s Econo-Judo

There is an argument that printing money will boost inflation, and that will cut real wages, boosting demand for workers, and for all sticky-priced offerings. Maybe so, that is not my main thrust. I do think the Fed can just about blow the roof off of the U.S. economy today, and we might still only get moderate inflation. More on that later.

But Cochrane knows econo-judo.

He flips the argument, and says that without sticky prices, monetary stimulus does not work. Prices just rise and fall with the money supply, and real output stays stagnant.


Luckily for me, Mr. MV=PT now jumped into the alley. Cochrane recently blogged that MV=PT is not true, but that strikes me as saying X cubed is not the volume of a cube with sides X. (Money x Velocity = Prices x Transactions)

So, if prices are far less upwardly mobile than in the 1970s (my real point), what happens if we boost M? We either get more T, or less V.

After 2008, we did get less V, but also more T, thanks to QE (Fed money printing). The Fed just should have really poured it on after 2007, instead of its timid, feeble, faltering and pre-announced delimited QE programs.

My argument is that first forwarded by Milton Friedman in his seminal 1998 piece for the Hoover Digest, Reviving Japan. Print more money, advised Friedman, and in the words of the disco classic, “don’t stop until you get enough.”

For the United States, I suggest the Friedman music is better than ever. Since the 1970s, the US economy has changed. Gone are Big Labor, Big Steel, Big Autos, Big Aluminum, Big Phone, big anything, stodgy retailing, a high minimum wage, and federal rate regulations on transportation, finance and communications. Also, International trade—and competition and global sourcing—has boomed. The Internet has made price information free. Top federal marginal tax rates have been cut to under 40% from more than 90%.

Yes, the economy is not as inflation prone—prices are sticky, but only on the upside. Ergo MV=PT looks better than ever. Go big on M.  As in MV=PT.

Ken Duda—Et Tu?

At this point Ken Duda joined the alley-fight blog-u-ment on the wrong side, and said all the structural impediment wipe-outs since the 1970s mean Cochrane is right, except that prices are still sticky anyway and so Market Monetarism still works.

Here is Mr. Duda:

Wow. Benjamin, it seems to me John is exactly right. Every example you gave is an example of reduced price stickiness. If price stickiness went away completely, monetary policy would stop mattering and the Philips curve would go away completely.


You know what? No more alley-fights for me. Ken Duda will come around anyway.

My hero now is Yutaka Harada, the new Bank of Japan central banker. He says things like, “We need to print more money.” Heavens to Murgatroyd, I wish our central bankers could speak as clearly.

Print more money. That’s my line and I am sticking with it.

  1. In my next post, I ponder if we do go to Cochrane’s 2% Deflation World, what happens when we hit a recession, and also there is no government bond market? Investors seek safe assets and find….?????

4 thoughts on “My Blog-U-Ment With John Cochrane or Et tu, Ken Duda?

  1. Interesting of Cochrane to mince words regarding inflation/deflation because those terms are ambiguous at best. A negligent Department of Energy causes inflation too, or an attentive one might cause deflation. Neither of which would be appropriate occasions for monetary offset; hence the folly of a single-minded focus on price changes due to the practical impossibility of disentangling the changes and attributing them to approximate causes. It would be nice if we could change the subject to something less counterproductive and less sadistic than the broad assumption that all changes in price have their roots in monetary policy.

  2. wow I’ve been mentioned by name in an important econ blog!

    I’m not sure if you and I disagree in the slightest. I was pointing out that your examples of bad signs on Cochrane’s blog (Uber, etc) were actually examples of price flexibility, which went against the larger point I thought you were trying to make.

    Can you articulate what you think we disagree about?


  3. Ken–

    1. I am something of the Market Monetarists’ court jester, so do not take anything I write too seriously…although I like to think I raise interesting issues….but I also try to bring the general public into our world…

    2. As we both think NGDPLT targeting the best we can do in the real world, we have no substantive disagreements…

    3. On Cochrane, I think I mis-explained myself, and have a better case to make.

    Yes, there is more price flexibility today than in the 1970s—but that means prices also have to flexibility to stay flat, instead of inexorably marching upwards as in the 1970s.

    I should have started with the premise that prices were inflexible and headed north in the 1970s, for the reasons outlined (Big Labor, Big Auto, no Internet, little international trade etc, higher minimum wages and tax rates, and federally regulated (captured) rates in transportation, finance and communications etc).

    So Cochrane said, “More flexibility today means monetary policy is less effective.” In one narrow perspective that is true, and you “agreed” with Cochrane.

    It was “Cochrane judo.”

    I understand you have a comprehensive viewpoint, but I was having fun and drama with the situation to make good copy.

    Because without me, Market Monetarism gets really dull….and Marcus Nunes, but he is more serious than me, although that is not hard to do…

    Cochrane is a smart and nice guy. But he seems to always find a way to advocate minor deflation and zero percent interest rates. Just as the left-wing cannot seem to get way from federal deficits as an economic cure-all, the right-wing just cannot get away from tighter money and rampant inflation-phobia.

    Both sides develop highly esoteric and elaborate explanations, and models, to “justify” their stances. Unfortunately, Cochrane is really good at what he does.

    3. Possibly on th

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