John Cochrane

Just buy units in a low cost index fund every month. > The average investor must hold the market portfolio. Anything else is a zero sum game. So figure out why you are different than average. (If you think you're smarter than average, note that they think they're smarter than you.) The result encapsulates some ancient advice: Buy stocks for the dividends, broadly interpreted. Take risk you are well-positioned to take. If stocks have great value to other investors for reasons either technical (liquidity, short-sales constraints, etc.) or behavioral, avoid them. [1] [1] https://johnhcochrane.blogspot.com/2022/01/portfolios-for-long-term-in…

Many people don't accept that human CO2 emissions are warming the planet because they disagree with the policy prescriptions that climate activists draw from that. So separate them and say that accepting the role of CO2 emissions does not necessarily entail a particular policy response. I think human CO2 emissions are causing warming but that most climate-related regulations, such as banning gas stoves in newly constructed homes, future bans on gasoline powered cars, heavily subsidizing electric vehicles, or restricting exploration for fossil fuels, are not worth it. Economist Bjorn Lomborg and columnist Holman Jenkins of the Wall Street Journal espouse this view, as does economist John Cochrane at https://johnhcochrane.blogspot.com/2020/12/unintended-consequences.htm…

> What isn't taxes is mostly then circulating in the economy (generating yet more taxes) while giving the economy a nice boost. This part entangles monetary policy with gov’t spending, which to some extent is politically inevitable, but IIUC is a very bad idea in general[1–3]. [1] https://johnhcochrane.blogspot.com/2020/07/magical-monetary-theory-ful… [2] https://www.cato.org/commentary/magical-monetary-theory [3] https://www.greaterwrong.com/posts/tAThqgpJwSueqhvKM/frequently-asked-…

"On the startup bailout. It is claimed that the startups who put all their cash in SVB will now be forced to close, so get going with the bailout now. It is not startups who lose money, it is their venture capital investors, and it is they who benefit from the bailout. Let us presume they don't suffer sunk cost fallacy. You have a great company, worth investing $10 million. The company loses $5 million of your cash before they had a chance to spend it. That loss obviously has nothing to do with the company's prospects. What do you do? Obviously, pony up another $5 million and get it going again. And tell them to put their cash in a real bank this time." https://johnhcochrane.blogspot.com/2023/03/silicon-valley-bank-blinder…

I would recommend this small article by economist John Cochrane <a href="https://johnhcochrane.blogspot.com/2021/10/supply.html">https:… The corporate media in general is very quick on this one calling it a transitory inflation. I am not sure that's case. We may be in for a bad stretch. Supply-side inflation can be very damaging and hard to fix, especially when the government is pushing a stimulus bill that, not only does not address the issue, it will potentially make it worse by throwing even more sand in the gears of the supply chain. People should plan accordingly.

Along the points you bring up, John Cochrane had a fantastic series about why wealth taxes are such a terribly economic inefficient mechanism to raise revenue and why virtually no economists support them. https://johnhcochrane.blogspot.com/2020/01/wealth-and-taxes-overview.h…

John Cochrane, over at Hoover wrote about university finances in light of Covid19 a few months back. Worth a read. https://johnhcochrane.blogspot.com/2020/04/university-finances.html

This is the best article I've seen on immigration: http://johnhcochrane.blogspot.com/2014/06/the-optimal-number-of-immigr…

I strongly recommend reading about John Cochrane's notion of equity-financed banking (PDF): http://www.hoover.org/sites/default/files/research/docs/george_shultz_… It functionally eliminates bank runs and the need for most regulation. People will be able to bank like normal, but contagion and bank failures go away. Not all banks need to be forced to go this route. But if you offered banks the option to opt-out of Dodd-Frank if they were 95% financed by equity and retained earnings, I'm pretty sure most would. Longer essay here: http://johnhcochrane.blogspot.com/2016/05/equity-financed-banking.html

It reminds me of things that are not superficial though, for example the homogenization of universities. Top schools all now mostly fall in line with "peer institutions", whereas you used to find schools that catered at least somewhat to different educational philosophies and personalities - which I think made for a richer academic discourse. Places like Stanford and MIT slowly become more Harvard every year IMO, and it sucks for student life too. Driving forces may not be exactly the same, but I think there are cultural undertones pervasive across these changes and some of the more superficial ones. It reminded me of this article: https://johnhcochrane.blogspot.com/2022/12/stanford-hates-fun.html?m=1 Anecdotally, I think it affects science too. Grants become increasingly formulaic, and anything deviating even slightly intellectually only has a chance as a token "high risk" project. People are afraid of saying something wrong that also clashes with current scientific norms, so everything seems so damn homogenous despite the many questions we still have little answer for. I think the "optimization" process that got us here is bad in part because it is optimizing for a single institution style that independently will do fine, and is thus a safe play for any decent university. However that is not the same as the set of institutions that would collectively do the best, not even close IMO. Homogenization can be efficient and should happen to some degree within an institution.…

Obviously I’m 20 years past university and nearer being the paying parent, but why oh why should university “capture the value of data”. They should offer affordable education (if you believe in the value of tertiary education) and affordable signaling of abilities (if you don’t). A recent post by John Cochrane [1] somewhat pointed out the absurdity in US education, Stanford specifically. Stanford itself mentions 15750 non teaching staff members on 2288 professors. My kids K12 (EU) runs on about 6 administrators (excluding cleaning, but including all other staff) for 22 teaching staff, including upstream shared services in the city. In a high school the ratio is probably even better. 15750 administrators wanting to capture the value of data is just plain silly. (I’m going overboard here, but it’s about an order of magnitude of difference! I know of 50% differences in FTE/value in the market I work in, but x10…) [1] https://johnhcochrane.blogspot.com/?m=1

Here's the economic argument against, from conservative economist John Cochrane (try to check the tribalism and focus on the arguments), who used to be a proponent of carbon taxes. The standard vision in policy discussions assumes infinite substitutability. As soon as the cost of clean energy is lower than the cost of carbon-emitting energy, everyone substitutes completely to the latter and the oil and coal stay in the ground. This is the key question. What the graphs make clear is that the majority of carbon must stay in the ground (or go back there) if we want to avoid a large temperature rise. (Again, I do not quibble with the climate side of the models here. Whether the large temperature rise actually hurts GDP is a separate issue, which I'll return to in the next post.) But as long as the elasticity of substitution is finite, as here, then the carbon comes out of the ground. As you use less and less, the remaining uses become more and more valuable, so it's worth it, privately and to society, to keep using it although at lower scale. This follows from a model that implies that even extremely high carbon taxes will only post-pone 4 degrees temperature rise by 50 years or so. So I learn from this that a key focus for R&D is not so much on lowering the cost of alternatives, but increasing their substitutability for fossil fuels. Just because the cost of solar cells is plummeting does us little good. We need to increase their substitutability. This consideration once…

https://johnhcochrane.blogspot.com/2021/08/covid-incompetence.html Say many things worth reading, but of masks specifically: > Masks do much more to stop you from giving it to someone else than to protect you. Cloth masks are close to useless. Well-fitting N95 masks work much better in both directions. Neither comes close to vaccination. Wearing cloth masks outdoors, far from other people, in the wind, as is the fashion in Palo Alto, is just part and parcel of the pointless virtue-signaling so prominent here. If you do go to that crowded all-night disco, wearing an N95 mask might be a good idea. Of course if you’re even thinking about wearing a mask, you’re not going in the first place, which is why the whole mask-mandate business is a bit silly. Absolutely worth reading the whole thing for the full context. If we're going to have a Ministry of Truth, shouldn't it at least be run by accountable, elected officials? Hasn't history proven pretty well that Ministries of Truth are damaging to society?

> And the boosts we have seen are mostly due to the availability of open-source software, and widespread knowledge sharing on the internet. Except the source of most productivity improvements is the dissemination of knowledge of improved techniques. A good analogy (https://johnhcochrane.blogspot.com/2019/05/free-solo-and-economic-grow… is with rock climbing. The rock climbers today are not much fitter or physically superior to climbers 100 years ago. At best there are minor improvements in shoes, but that's it. What allows someone to free solo El Capitan in 4 hours was standing on the shoulders of giants who had discovered and disseminated climbing techniques in the last century. This effect is even more pronounced with software, because of how easy it is to reuse others' work. I don't need to learn from the collective experience of Linus Torvalds and other kernel developers, I just use Linux. I don't need to understand the intricacies of text rendering (https://gankra.github.io/blah/text-hates-you/) or compiling or the universe of hardware. I can still add economic value with my software while standing on the shoulders of these giants. I can gain knowledge from all the great documentation out there, as well as helpful Q&A websites. Imagine how many projects would have been abandoned and economic value lost without knowledge being disseminated on StackOverflow. That is the productivity gain of the last few decades. If someone can't see that, or wants to condescend…

We need a carbon tax stat IMO. Economist John Cochrane had a good blog post about this recently (I actually posted to HN a few days ago but it got buried): https://johnhcochrane.blogspot.com/2019/05/ip-on-carbon-tax.html From the end: "Climate policy was headed to this kind of bipartisan technocratic resolution in the 1990s before it became a tool of partisan warfare. The challenge, from both sides, is to remove the political baggage that climate policy has accumulated." He then makes that appeal to both sides: "To my climate-skeptic friends: Given that the government is going to regulate carbon, this is the way to do it with least damage. To my green-warrior friends, if the government is actually going to reduce carbon, not just subsidize cronies and engage in worthless value-signaling gestures, a trade of carbon taxes for absurdly costly regulations and subsidies is the only way to get anywhere."

- Marginal Revolution (Tyler Cowen & Alex Tabarrok): economics https://marginalrevolution.com - John Cochrane: economics https://johnhcochrane.blogspot.com - Interfluidity (Steve Randy Waldman): all over the place, but mostly economics-focused https://www.interfluidity.com - FT Alphaville: finance and economics, free signup required https://ftalphaville.ft.com - Money Stuff (Matt Levine): finance and economics, very entertaining and accessible https://www.bloomberg.com/view/contributors/ARbTQlRLRjE/matthew-s-levi… - Andrew Gelman: statistics with an emphasis on applications in the social sciences http://andrewgelman.com - Flowing Data (Nathan Yau): data visualization and statistics https://flowingdata.com - Shravan Vasishth: statistics and statistical computing, often very technical https://vasishth-statistics.blogspot.com - Rasmus Bååth: statistics and statistical computing (inactive but worth mentioning) http://www.sumsar.net/blog/archives

(1) Liquidity always dries up prior to the announcements. If you're a market maker, you don't want to get run over by someone moving the price on new information. (2) It's a myth that raising rates will give the Fed more ammunition. That's like saying you should exercise less now so that if you gain weight in the future you'll be able to make a bigger change in the amount you exercise. (Not the perfect analogy, but I hope you get the idea.) The fallacy comes from thinking that the change in interest rates is what stimulates the economy, not the interest itself. A second issue with raising rates to 'increase ammunition' is that if you choose a rate path that is too high, you'll depress economic growth, pushing rates down, counteracting your goal of higher rates. Monetary economist Scott Sumner writes: "Fed funds target rate increases tend to reduce the Wicksellian equilibrium interest rate, and hence give them less ammunition for the future. The ECB in 2011 is now the classic example, but you can cite Sweden, or Japan (2000 and 2006) or the US (1937) as well." Here's a neutral-point-of-view blog post that discusses whether it makes sense to think about rate hikes as 'adding ammunition': http://johnhcochrane.blogspot.com/2015/05/small-shoes-and-headroom.htm… And here's a blog post that argues that while rate hikes might not give you monetary ammunition, they still might give you reputational ammunition: http://www.themoneyillusion.com/?p=31361

I'm going to say the surveyed opinion is wrong and is furthermore asking the wrong question. 1) There is a welfare trap, and it is real. The more needy you are, the more your welfare programs are robbed with each wage increase. The marginal rate is very high and in some situations can exceed 100%. Here's what the welfare trap looks like for low-wage families, in one graph: https://lh3.ggpht.com/-_-6Fsycanmw/ULO_5kk3fxI/AAAAAAAAAU4/y1PbUElDS34… taken from: http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.html If you follow economics there is an astonishing difference in the quality of discourse between the two sides--the pro minimum-wage crowd does not seem aware of the data working against them. 2) There is furthermore research suggesting employers respond to minimum wage by scaling back future employment plans and by causing workers to work harder. Part of the reason minimum wage jobs are so awful is if they weren't, they would not be worth the money. 3) People think of minimum wage as a redistribution of wealth from evil corporate employers and rich consumers to the poor and needy. Notwithstanding who is evil and who is good, that is basically the effect. You can accomplish the same thing in a much simpler, market-friendly fashion: pay the poor for working. A minor version of this program exists--the earned income tax credit. It does the same thing as minimum wage--redistribution of wealth--without the overhead, without reducing…

There's a bunch of papers and books that recalculate growth after transfer payments. Here is a link to one book review and you can take a look at some of the figures that they came up with. https://johnhcochrane.blogspot.com/2022/12/calomiris-on-gramm-ekelund-… When you see those numbers about wage stagnation it always comes down to three big questions: 1) Are transfers & taxes included 2) Do you calculate the value of the transfer at the cost the government spent, or the utility received 3) What inflation metric you use

> there isn't a graceful way to ease from fractional reserve to narrow banking Wouldn't the graceful way be to... simply allow narrow banks to have fed accounts? https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-banks.html?m=…

Check out The Narrow Bank and what happened to them. https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-bank.html?…

Narrow banks. The FED didn’t like the idea…[0] [0] - https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-bank.html?…

Fed hates that and fights this tooth and nail. See, for example: https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-bank.html https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-banks.html

Good overview on Fed's response to TNB: https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-banks.html

Silicon Valley Bank was an outlier with respect to risk. https://johnhcochrane.blogspot.com/2023/03/silicon-valley-bank-blinder… The CEO pushed to ease regulations, and the lack of regulations led to this over-indexing in risk that was clear as daylight. But no one cared because they helped out startups, everyone knew the CEO personally, the VCs had relationships with the banks, etc. Saying that "no one could see that coming" was wrong. Now the crybaby VCs THAT ACTUALLY CAUSED THIS PANIC IN THE FIRST PLACE get their way by preserving their investments, but hopefully the stark hypocrisy of Biden, first saying that millionaires "need to pay their fair share" and then immediately turning around and bailing his Silicon Valley VC buddies out, will be brought up time and time again during the election cycle.

One of your professional colleagues disagrees, feeling that academia generally is partisan https://johnhcochrane.blogspot.com/2022/07/woke-week.html?m=1 and that economics in particular is too https://johnhcochrane.blogspot.com/2022/06/aea-p-measure-of-organizati… Economics is less partisan than any other social science, with only three times as many Democrats as Republicans but academia in general is merrily burning its reputation for truth seeking and Economics won’t escape. Not being as bad as psychology or sociology where all conservative academics could meet in a small lecture theatre is a low bar. https://www.nas.org/academic-questions/31/2/homogenous_the_political_a…

Meanwhile, the University of California seems to have implemented a DEI litmus test on all applications for faculty positions and promotion. Does anyone know if this is actually true? Is this reasonable? https://johnhcochrane.blogspot.com/2020/01/wokeademia.html?m=1

Scott Sumner and John Cochrane make strong arguments that companies transferring intellectual property to China is neither poor business sense nor necessarily a bad thing https://johnhcochrane.blogspot.com/2018/08/intellectual-property-and-c…

Inflation measurement is a hard problem. Some say it's over-estimated: https://johnhcochrane.blogspot.com/2019/08/inflation-and-history.html (More on quality adjustments: https://www.brookings.edu/blog/up-front/2018/07/25/measuring-inflation… )

Hell, there's NOT increasing inequality by sane definitions - meaning if you count government taxes and transfers. Yes, pre-tax, no-transfer income inequality has increased, but by definition increasing taxes and transfers won't fix that. And once you include ss/welfare/snap/eitc/etc as well as taxes, income inequality today has barely changed over the past century. And the recent "increasing wealth inequality" papers have based on the dubious assumption that "wealth = capital gains income / risk-free instantaneous rate of return", [0] which means that wealth goes up as interest rates go down if income holds steady. 0: https://johnhcochrane.blogspot.com/2020/01/wealth-and-taxes-part-v.htm…