TheMoneyIllusion
A slightly off-center perspective on monetary problems.
The Special Theory of Employment, Interest and Money
I recently reread John Cochrane’s now infamous 2009 attack on fiscal stimulus for about the 4th time, and it’s not getting any better. Oddly, he ends up arguing that we need more money and T-securities, which is precisely Brad DeLong’s argument. But he seems confused about the Keynesian model, arguing that the Keynesians favor more consumption, not more investment.I have some sympathy of Cochrane, as I also find Keynesianism very confusing. You often hear Keynesians warn about too much saving. Since it’s basically a closed economy model where S=I, that would seem to imply they fear too much investment. Yet they don’t really worry about too much saving, rather they worry about too little saving triggered by an attempt by the public to save more at any given interest rate, which sets in motion a series of events that lead to less saving. Or at least I think that’s what they assume (in accelerator models), but perhaps I’m just as wrong as Cochrane.In my view the basic problem with the Keynesian model is not that it’s “wrong” (how could something be completely wrong and yet accepted by so many brilliant people?) but rather that it’s right, when it’s right, for peculiar and unreliable reasons.
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