In a recent post, Cochrane says all money should be interest-bearing. His view is a concession to the world as it is today, when most (but not quite all) money is interest-bearing.
The cost of interest is the central, underlying problem in the world today. But not because interest rates are so low. No, that was a solution, remember? The cost of interest -- the accumulated cost of interest -- is a problem because there are so many dollars already that are interest-bearing.
The problem, in other words, is that there is too much debt. There is so much debt that, even at the zero bound, the cost of finance holds the economy down.
Cochrane's opening talks up government debt: "I propose a new structure for U. S. Federal debt. All debt should be perpetual, paying coupons forever with no principal payment..."
Then he gets into it, quoting himself:
Economists have long dreamed of interest-paying money. It fulfills Milton Friedman’s (1969) optimal quantity of money without deflation. Paper money is free to produce, so the economy should be satiated in liquidity...
Mmm. "Economists have long dreamed of interest-paying money." Well, we have that. Every dollar of debt -- public and private -- is a dollar that somebody put into circulation, and is paying interest on, to keep in circulation.
The problem is not that there's not enough interest-bearing money around. The problem is that most of the money we borrowed and spent into circulation and are still paying interest on, most of that money is now sitting in somebody's savings account collecting interest. We are paying interest on money we spent into circulation, but that money has already settled out of circulation and somebody is collecting interest on it. Oh, and the banks are making money at both ends of that arrangement.
Meanwhile, that arrangement does nothing to help the real economy.
Cochrane quoting Cochrane:
Our economy invented inside interest-paying electronic money in the form of money market funds, overnight repurchase agreements, and short-term commercial paper, and found it useful. But that money failed, suffering a run in the 2008 financial crisis.
Yeah, that money failed. It gave us the 2008 financial crisis.