Wednesday, August 1, 2012

Cochrane: Just how bad is the economy?

I liked his post. Maybe I forgot to say that in my comment?

Seven graphs, Cochrane provides. You know I had to like the post. Interesting vertical scales too: "Real GDP, Percent Relative to Peak", for example.

Cochrane considers the merit of trend lines, compares the RGDP trend to potential output trend, looks at lots of things I've looked at; he looks at them with ease and a writing style that made his post easy to follow. Of course I liked Cochrane's post.

My comment?
Good post (I could follow it:)

Word counts
"private debt" -- zero.
"debt" -- two in the sidebar, none in the post or comments.
"credit" -- zero.
"money" -- one, in the comments.

If financial costs are a drag on growth and productivity, one would not know it from this post.

John Cochrane's reply:
More words missing. Education. Regulation. Cronyism. Marginal tax rate. Give me a break, how many words and graphs do you want in a blog post?

Oh, he gave me a good laugh!

It was a good post, and it was a good comeback. But you know what? Cochrane equates debt and private debt and money and credit with education and regulation and cronyism and marginal tax rates. Just more so-so topics that didn't fit in his post.

It's not like that, for me.

Cochrane's conclusion:

The trends are an economists' horror movie. Real GDP seems not to be recovering at all...

What to do? If only it were so simple as to have the Fed print up another two trillion dollars, or have the Treasury borrow another $5 trillion and blow it on stimulus boondoggles. We're stuck in sclerotic growth, and to everyone but a few die-hard extremists, that means growth-oriented policies are the only way out.

My conclusion? It *is* simple. The problem is debt, excessive private debt. If the question is "What to do?" -- and if it is a serious question -- then more is required than just a great retort.

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