John H. Cochrane on fiscal theory, bank failures, central-bank independence, and more

John H. Cochrane predicts a period of stubborn inflation, explains why more regulation will not end financial crises, and more. The PS Say More Newsletter | [View this message in a web browser]( [PS Say More]( This week in Say More, PS talks with economist John H. Cochrane, a senior fellow of the Hoover Institution, an adjunct scholar at the CATO Institute, and the author of [The Fiscal Theory of the Price Level](. To read the full interview – in which Cochrane predicts a period of stubborn inflation, explains why more regulation will not end financial crises, considers factors that may diminish faith in government-debt repayment, and more – [click here](. John H. Cochrane Says More... Syndicate: A year ago, you [argued]( that surging inflation was forcing policymakers and commentators to abandon “wishful thinking.” Today, the inflation picture has become somewhat murky in the United States, and hopeful predictions from earlier this year – when price growth was slowing, and GDP and employment growth were holding on – are giving way to more cautious assessments. Are sanguine projections just more wishful thinking? How do you read the inflation signals of recent weeks? John H. Cochrane: I try hard not to read weekly signals! Economics is really not about short-term forecasting or peering at the latest numbers. Economists are better at conducting “if-then” analysis and discerning longer-lasting forces. And on those fronts, it’s worth being explicit about how one views the world. My view, of course, is shaped by fiscal theory. In that view, we are largely... [Continue reading]( [PS. Subscribe to PS Premium to receive your copy of PS Quarterly: Paradigm Shifts.]( By the Way... PS: At first glance, fiscal theory – the focus of your new book, [The Fiscal Theory of the Price Level]( – might seem to complicate the principle of central-bank independence, not least because of the role politics plays in fiscal decision-making. In your book, however, you explain that an “independent central bank is a fiscal commitment.” What, then, would characterize an optimal relationship between monetary and fiscal policymakers in the fight against inflation? JHC: Yes, even in fiscal theory, at the end of the day, a central bank can stop inflation by refusing to print money to repay debt. And its balance sheet can communicate that there are assets backing the currency. Also, the ability to set interest rates makes central banks powerful, even in pure fiscal theory with no financial frictions. Add financial frictions, and they are more powerful still. I’ll demur on “optimal” for these short answers. I write about a lot of arrangements, including... [Continue reading]( [PS Say More: Richard Haass on Russia, Taiwan, US democracy, and more]( [Richard Haass on Russia, Taiwan, US democracy, and more]( Richard Haass explains what caused the Ukraine war, urges the West to scrutinize its economic dependence on China, proposes ways to reverse the dangerous deterioration of democracy in America, and more Haass is former Director of Policy Planning for the US State Department, President of the Council on Foreign Relations, and the author, most recently, of [The Bill of Obligations: The Ten Habits of Good Citizens](. [Read now]( [PS. Subscribe to PS Digital now.]( [Facebook]( [Twitter]( [LinkedIn]( Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to more than 500 media outlets in over 150 countries. Receipt of this newsletter does not guarantee rights to re-publish any of its content. This newsletter is a service of [Project Syndicate](. [Change your newsletter preferences](. Follow us on [Facebook]( [Twitter]( and [YouTube](. © Project Syndicate, all rights reserved. [Unsubscribe from all newsletters](.