Gettin’ Grumpy with It: John Cochrane on the Fed, Tariffs, and Why Dogs Rule

Milton Friedman: Because Germany was then occupied by the Americans, the British, and the French, they were able to enforce price control much more effectively than a domestic government could have enforced it. And they had price control, widespread price control. As a result you didn't have inflation, you just simply had money not being used, you had barter.

Speaker 1: Exactly.

Milton Friedman: And it's funny, they used cigarettes as money, they used liquor as money, cognac. I've always said it's the most liquid money you ever had.

Bill Whalen: Hi, I'm Bill Whalen, I'm a distinguished policy fellow here at the Hoover Institution. I'd like to welcome you back to GoodFellows, a Hoover institution broadcast examining social, economic, political, and geopolitical concerns.

Now, you may have noticed this is a little bit of an introduction because this is a very different GoodFellows. Rather than our usual troika of senior fellows, we have just one good fellow on today. And the honor goes to my friend John Cochrane. John is the Hoover Institution's Rose-Marie and Jack Anderson senior fellow.

He's an economist specializing in financial economics and macroeconomics. He's also the author of the Grumpy Economist blog, which provides news, views and commentary from a humorous free market point of view. But wait, there's more, John Cochrane is the author of the Fiscal Theory of Price Level, a comprehensive account of how government deficits and debt drive inflation.

John, deserve an award for good timing. Indeed, the same year the Fiscal Theory of Price Level came out, John was honored with something far better than a pat on the back. In 2023, he was awarded the Bradley Prize for his work in making sense of economics and his writing and his analysis.

John, great to have you on the show. And after four years of having a contend with Neil Ferguson and H.R McMaster, the stage is yours, my friend.

John Cochrane: It's great to be here and I can get a word at edgewise.

Bill Whalen: Edgewise, John. Back in the day of the Beatles, George Harrison was known as the silent Beatle because he wasn't as forthcoming with the media as Harrison and as McCartney and Lennon.

I wouldn't call you the silent GoodBellow because you always get a word edgewise. I would have, before the show called you the healthy good fellow. Because why? You adhere to a very healthy lifestyle. You eat right, you exercise. I don't think you smoke, I don't think you drink.

 

I don't know if you swear, well, maybe you swear a little bit. Anyway, you're the healthy GoodFellow until today. John, tell us what currently ails you.

John Cochrane: I will.

Bill Whalen: Because of the voice.

John Cochrane: Finally, after four years, I did get COVID my first time. I think I'm the last person in the country, second last.

Beth still hasn't gotten it, which we're working on yet, but it's only turned into a little cold now. So I'm in my basement, quarantined for a little bit, but feeling fine, and this will be over soon.

Bill Whalen: What do you find different about having COVID in 2024, John versus your having seen other people experience it four years ago when we began GoodFellas?

Is it just more run of a mill? I have COVID, I have a cold, don't panic or you find different mentality now surrounding it?

John Cochrane: Well, yeah, what I read is consistent with what I'm having. It's just a little chest cold, in fact, I would not have identified this as COVID except that Beth had about 100 tests sitting around the house that need to get used, so we took one.

And the social part of it is people aren't treating it, they're just treating it like a cold. All my friends say, yeah, I had it five times, it'll go away in a week. It's hard to believe we shut the country down over this, but of course, it is a much milder disease now than it used to be.

Bill Whalen: I like the deeper voice, I think you might have a future on, like late night FM radio or doing voiceovers.

John Cochrane: Yeah, that would be great.

Bill Whalen: Let's talk a bit about how John Cochrane came to be John Cochrane. And something that's always kind of piqued my curiosity, John puzzled me, is your academic art.

You went to MIT undergrad and you majored in physics. I was fully expecting economics, but no, you're a physics major and then somehow you make your way to Berkeley to get advanced degrees in Economics. Can you explain a bit about that march? Because is it normal for economists like yourself to have very different degrees like Physics?

Or am I wrong here to the two dovetail?

John Cochrane: No, it's quite common, actually. Economics is full of fallen physicists, it turns out that economics uses the tools of about sophomore physics to describe social problems. And that's what made it attractive to me. I've always changed what I did, actually, on a fairly regular basis.

I went to college thinking I'd be an aerodynamical engineer, turned to Physics, which I absolutely loved, for four years. Recognized that there wasn't gonna be many jobs in physics for me. I wasn't smart enough to be a theorist, and I'm a terrible lab manager. And I loved Economics, I took economics at MIT as my humanities distribution requirement.

I thought that would abuse you, the two courses I took were very interesting. And so I just on a long after senior year, I called up the places that actually I wrote letters. We used to do that back then, wrote letters to the places that had let me into graduate school and physics, and said, how about I change my major?

I did this in August, and most of them said, apply like everyone else, but Berkeley and Chicago let me in. And then I knew it snowed in Chicago and didn't snow in Berkeley, so off I went. And I say, I mention this in part because it's the sort of thing it's much harder to do in our much more credentialist age, get into graduate school like that on a lark.

I was just a physicist from MIT, two classes in economics, pretty good grades. They let me in, and the rest was history. But it's just the right move for me, the physics training was spectacular. On economics isn't about math, and math's not that hard. It's about seeing a situation, creating a simple model of that situation.

And that's what physics teaches you to do really well and economics is a place that sort of like physics in the early 1800s. You didn't need a big lab and an army of research assistants. You just need some time and some simple modeling skills, and you could think about really important problems that way.

So it was a natural move.

Bill Whalen: But you do end up at the University of Chicago eventually, and you end up studying finance. Why finance, John?

John Cochrane: Yeah, boy, there's a long story there. I did do Berkeley in Chicago, starting at Berkeley and then going to Chicago turned out to be very formative.

I mean, who knows what would happen otherwise, but I certainly would not be who I am today. Berkeley gave me a grounding in general equilibrium theory, which is wonderful. They tried to make a Keynesian out of me, which failed. But it did convince me that monetarism, which reigned true in Chicago, had some holes in it.

And so I went to Chicago as I was doing sort of time series, econometric statistics stuff. But I was able to tell a good story and got the job there, which is, of course, a dream job for a young assistant professor to be at the University of Chicago.

I've always done very simple things. My forte is not doing really, really complicated fancy models, but thinking deeply, I hope, about things in very simple terms. And finance in the late 1980s was really exploding with the new but very simple tools of time series, econometrics, dynamic general equilibrium theory.

And so it was a natural place to go. I fell in with Lars Hansen and Eugene Fama, who were great heroes of mine and slightly senior colleagues, but treated me as a friend and just became very interested. Part of it was, of course, my wife took the finance classes at Booth, and so we started talking about it.

So worked on the problem sets a little bit together and that, going in finance as well. And it's a place where a couple simple principles, price is present value of dividends. There's only about three things I've ever learned in life, and prices, present value, dividends is one of them.

But then taking that and making it useful and figuring out how it applies to the world, that's what I do. Take something really simple like that. But then, we got a puzzle, it looks like a bubble, how do you squash, how do you make that work? And that's what I'm doing with fiscal theory at the price level.

Bill Whalen: Right, you mentioned Eugene Fama was a Nobel laureate and the father of modern empirical finance. Who was Eugene, the farmer of John Cochrane?

John Cochrane: Well, he's, yes, incidentally, my father in law, I did move to Chicago and marry the boss's daughter. Traditional path in life, and we did.

Bill Whalen: Was that simple, the love of your life was in the room next door waiting for you?

John Cochrane: Well, actually, I met her first, I met Beth the night I came back to Chicago, and it was love at first sight. And only then did I realize that she was his daughter.

But we worked all that out, and Gene and I became great colleagues during the morning, windsurfing buddies in the afternoon, and family in the evening. And that was a wonderful, wonderful time.

Bill Whalen: We're gonna pick up with you and Beth a little later in the podcast, John, because I've got an issue with your Portuguese water dog, which we'll get to a little later.

But let's turn to policy, John and I wanna talk about the Federal Reserve. We've been talking about the Fed offline, and you suggested there's something of a disconnect with the Federal Reserve in terms of what people actually know that it does, can you explain that?

John Cochrane: Well, boy, now you want me to condense like 30 years of thinking about monetary policy.

Bill Whalen: 30 seconds or less.

John Cochrane: This is something I've been writing about lately, my latest article, which I think is fantastic expectations, neutrality of interest rates, and nobody else is paying any attention to, so I'll start advertising it. There is an interesting disconnect that in the Fed and in the public policy commentary, there's a sort of a doctrine about how the Fed works.

The Fed raises interest rates that softens demand in the economy, and then that softens the economy and somehow that lowers inflation. And we just say this, a fascinating fact is that there is no halfway respectable economic model in the last 30 years that works that way. And that hasn't stopped academics, our journals are full of fancy, very complicated models of monetary policy.

But none of them actually work the way people say they work. And similarly, the empirical evidence, when you look at it carefully for this supposed fact, is extremely weak. So here we are, it's kind of funny, there's this presumption of huge technocratic competence, and the Fed and the ECB and all the central banks spin the transmission mechanism of monetary policy, which we're carefully monitoring.

But there's a very deep, nobody knows how it works. Now, maybe the doctrine and the wisdom of the ages is right, and the theory just hasn't caught up. Maybe the theory is right and it works a whole lot differently than we think. I suspect the Fed is in fact much less powerful than everybody thinks it is, in part because fiscal theory, the price level, I think fiscal policy underlying is a very important thing.

But it's a very striking fact, this is what I know from 40 years of academic study. I don't know how the world works, but I know all the theories in detail. I've read the equations and I've read the words, which often don't have anything to do with the equations.

And I can tell you what's not in them. And what's not in them is a technical backing for the stories that are commonly told. I think that's a fascinating thing, and that's what makes monetary policy interesting. Anyone young listening? Hey, it's not something that's all well worked out, and it's just time to add more twiddles and complications this with the basic questions.

Does raising interest rates lower inflation? When and how? That basic question is academically unanswered. And that leaves to what extent is the doctrine that pervades policy circles? Does that not hold or not hold anymore?

Bill Whalen: So what is your takeaway, John, from how the Fed handled inflation? It seems we went through chapters, one chapter of denial, chapter of grudging acceptance, and now current handling, how do you process this?

John Cochrane: That's interesting. So obviously, why did we get inflation? To me it's absolutely clear the government basically printed up $5 trillion of cash and handed it out and crucially, did not have a plan in place for how are we gonna pay back all this new debt. That is the message, the fiscal theory of the price level, as you said, I'm the luckiest economist in the world, cuz I sent a draft of a book with that that I've been working on for 30 years to the Princeton University press in March 2021.

It said, by the way, dont print up $5 trillion of money, hit it out. They did exactly what the book said and got exactly the kind of inflation. And so that's certainly where inflation came from. But the Fed could have reacted a lot quicker. I think, both in models and the judgment of history, that the Fed should react quickly to inflation by raising interest rates.

The Fed did not, all central banks sat around for a full year before doing anything about it. I dont think that could have stopped the inflation. But it certainly could have slowed it down and smoothed it out a lot better than it did. And everybody else thinks that the Fed is much more powerful, and the Fed could have really stopped the inflation in its tracks with higher interest rates.

So it is remarkable that all this information, not just the Fed, sat for a year before doing anything about inflation. And that's an interesting reflection, we have this image of huge technocratic competence, but our institutions, they're not terrible. They're just people like us doing the absolute best that they can.

And the best that they can is kind of limited, and we ought to, I'm not criticizing the Fed. We ought to think about, get the basics right before we try to do very fancy things. And that's, there was a pretty basic failing, not seeing, not seeing inflation and doing something about it.

And the Fed is still kind of in the dog ate my homework mode rather than how could we have missed something so basic? The same thing happened with Silicon Valley bank. We have hundreds of thousands of pages of Dodd frank regulations and regulators and so forth. And the Fed just completely missed a bank that was taking in huge amounts of deposits, putting them in long term treasuries.

And if interest rates went up, because everybody knew interest rates would go up, the bank would be underwater, and the huge regulatory apparatus just missed it. Now, again, that's not a criticism of people, it's just I think we have way over complicated what we think these institutions are capable of.

And they need to reform and get back to just basic competence.

Bill Whalen: What is it about Washington, John, that tends to have the press deify heads of the Federal Reserve? I'm old enough to remember when Alan Greenspan was just treated like a God in Washington in the 1980s, Paul Volcker was treated as a God.

Trompel is not treated as a God, but when he speaks, just everybody stops and listens. It's like the end of the movie, trading places where they're waiting for the prices to come out in frozen, concentrated orange juice futures. But Powell knows all, he'll tell all, he'll lead us through.

Why does the press elevate the Fed to this high level?

John Cochrane: That's an interesting question. Well, why does the fed want to be elevated to the high level is an interesting question. The Fed didn't used to be nobody thought it was particularly powerful back in the old days.

And Milton Friedman kind of won the discussion, I think a little too much by thinking the Fed is very, very powerful. And then Fed chairs institutions like to be thought of as powerful. So they certainly did not do anything to dissuade this high priest mentality. It raises the image of the Fed.

As an example, in the 2010s, when the Fed undertook quantitative easing and all this stuff, another approach might have been saying, we've done what we can with money. It's up to you guys, we'll be on vacation, crisis is over, cost up when you need us. But now it was just monthly speeches and what we're doing and providing more stimulus and so on and so forth, which tends to aggrandize the Fed.

But I think on the other hand, we're guilty too, people want it. I'm listening to a great Roman history podcast. And people always life's uncertain and you wanna think that there's some high priest out there divining, listening to the augurs and divining what the flight of the birds says about the next season and listening to the Fed chair is about the same psychologically for the rest of us.

I have listened to the augurs at the Temple of Jupiter, and I think that core inflation will be softening in the next few quarters. It fills that sort of psychological need for somebody in charge of something around here.

Bill Whalen: Let's shift into current events John. In case you haven't noticed, there is an election underway in the United States.

I thought we had a great episode of Goodfellows on this recently. Question for you John as we discuss economic matters in this election, I wanna throw three items at you and get your thoughts. One is tariffs, the second is taxes, cut them or increase them, and then thirdly, national rent control, so let's start with tariffs.

John Cochrane: Yeah, well, your calling card as an economist is that tariffs are a terrible idea. Let's just, that's a fact. And it is a little unsettling that us economists like to go into all sorts of fancy stuff, but policy is stuck at fallacies from the 1600s. Like tariffs are a good idea or like inflation.

I'm listening to the roman history podcast, and what I hear about inflation now from our politicians sounds a whole lot like emperor Diocletian. It's the middlemen, it's the Pringles, it's the price gougers, it's the money lenders, got back to the usual stuff. So, it is kind sad that we can't get basics right now.

On the other hand, there is a relative amount of damage here. A 10% tariff on everything is not a great idea, but how much damage will it do compared to nationwide rent control for example? That sounds actually much worse. I'll actually make Trump an offer. Put me in charge of the treasury secretary and I could impose 10% tariffs with no damage really quickly, how?

Well, I'd let you take a deduction off for all your exports, and then of course, crucial national important industries will get a waiver. So 10% on everything it's not a good idea, but it's not as disastrous as many other economic policies the aforementioned national rent control. What's the name of that history podcast you're listening to, John?

Bill Whalen: We're going to get flat on that next.

John Cochrane: Yeah, it's called the history of Rome, it's a wonderful podcast. It's not very deep history, Niall will certainly be very snooty about it. But if you wanna start with the republic and get your way all the way through the emperors, and you have a really long car drive.

I started listening to this driving from Hobbes, New Mexico back to California. I didn't get a third of the way through but boy did it pass the time. It's a great, great new podcast.

Bill Whalen: Okay John, taxation, let's talk taxes now.

John Cochrane: Yeah, tariffs are a tax by the way.

So let's put everything in context here. So taxes, I don't like to use the word cut taxes, I like to use the word tax rates. Economists should always be about incentives and avoid the temptation to wade into redistribution about which we have no more real expertise than anybody else.

So taxes, the game of the economist view of taxes, we can actually square this circle. You need revenue for the government and you wanna minimize economic damage. So that means you want more tax revenue and less tax rate. And that's why it's really important to distinguish taxes from tax rates.

And so, ask an economist how to do this. And if you just state the question, maximize revenue for the government while doing the least possible economic damage, you want the broadest possible rate base and simplicity and the smallest possible rate. Now we do just about the opposite. We have a swiss cheese of deductions and exemptions and then very high marginal rates.

The important thing is, remember all taxes add together. So what counts for the economy is you produce an extra dollar for your employer, how much do you get to actually benefit from that? So you gotta take off federal taxes, state taxes, local taxes, sales taxes, excise taxes, your share of corporate taxes and so forth.

We're already at the high earners and California my guess is about 70% marginal tax rate. So there's not much room to squeeze more out of that without everybody saying, I'll work like Europeans. And Europeans have actually not that much higher tax rates but 40% lower GDP. So I think I won't get too deep into the John tax reform proposal.

But the answer if you ask an economist for the answer is you wanna broad based sales tax on just about everything at whatever rate it takes to pay what the government wants. And then you get low rates and high revenue, that's the answer for taxes.

Bill Whalen: Okay I'm just saying.

John Cochrane: You probably want it do you want Trump's tax plan or Biden's tax plan, I can always try to square the circle with what's the right answer.

Bill Whalen: I assume John a listener reviewer could go to the grumpy economist blog and do a search on taxes and they'll probably get the John Cochran phone book, right?

John Cochrane: Absolutely, absolutely.

Bill Whalen: All right, thirdly John, let's talk briefly about national rent control, what says you? And do you just kind of lump this in the same basket as say student loans?

John Cochrane: It's actually I think more damaging than student loans. And here Jason Furman, who's an out Democrat and Biden supporter just said this is the dumbest idea ever.

It's funny it used, what are the calling cards for being an economist? You understand that tariffs, minimum wages and rent controls are terrible ideas. And at least tariffs a lot of my buddies on the right are giving in to their desire to be seen well by the new Republicans and sort of making excuses for tariffs and national security and so forth.

A lot on the left have made excuses for minimum wages, but we all seem to still agree that rent control is I think as Gunner middle, I forget what Swedish economist said, it's the best way known to destroy a city short of bombing. That is exactly right, it's tempting, now let's try to understand things.

Always a temptation, economics is about incentives and politics is about redistribution. Politics is about taking from a and getting to b in return for b's political support. Economics is really silent about if that a good idea, but squeaks up and says, wait a minute. Now there's a disincentive.

And so when you pass rent control, existing renters say, hallelujah, I don't have to pay as much rent, they love you. And it takes time for the damage to sink in. And the damage is to people unseen. The damage is to poor people, people who need to move, immigrants, people who want to move to a city and take a better job.

The damage, of course, is the construction, we don't have building of new apartments. So there's a reason it's appealing. It's an immediate shot in the arm to one politically popular group, renters, at the expense of a politically unpopular group, existing landlords. And with long-term damage, that only takes time to sit in.

So a supremely bad idea that we've known is a bad idea for centuries, and it's a goodie back to economic policy. And I'm a little annoyed at my economist friends who wanna construct very complicated things when our political system cannot get straight. Tariffs, taxes, rent control, minimum wages, just things we've known about for centuries.

Bill Whalen: John, I started the show by calling you the healthy GoodFellow. I probably should also mention that you're at times the outnumbered GoodFellow when it comes to conversations about China, in particular, strategic economic competition with China. So the two hawks aren't here, Niall's not here, HR is not here to shoot you down.

So, John, take a moment or two and just run with it, just enjoy talking about this topic, which you always get shouted down on.

John Cochrane: Well, let me not so much my esteemed colleagues have nuanced views on this topic. And I must plug our show, one of the things I love so much about our show is the interaction.

And I learn from them and I listen to them and I modify my views based on what they're saying. Right. But in general, there is a tendency, mercantilism, which as a theory got thrown out in the 1700s, reigns supreme still in politics. The idea that what we need to do is export more and import less, and that's the key to national health, and it cloaks itself in all sorts of things.

So a lot of the motivation is when you say win the strategic economic competition with China, what are people really talking about here? Yeah, we don't wanna sell brand new F-35 to China, that might be a bad idea. On the other hand, it might be a good idea because if they had to rely on us for some spare parts for their air force, maybe we'd be in a better situation than if we got them to build their own air force and be independent of us, but that aside.

There's an idea that what we need to do is put in tariffs protection, build stuff at greater expense in the US than buying it from China and selling in return to them stuff that we do better. And that this is a great idea for us economically and a great idea for us as a country that our purpose is to make Americans better off by making Chinese people worse off.

If it even worked, which it doesn't. What it does at best is make Americans a little bit worse off and try to make Chinese even more worse off. But overall, we're not here to win an economic competition. Economics is different from war, trade is mutually beneficial, we all end up better off.

If you wanna do better than China, the way to do better than China is not to try to put up barriers. In the past when we were a great export powerhouse, it's not cuz we had big trade barriers, we were in fact the free traders, it's cuz we were better.

Bill Whalen: Right.

John Cochrane: Our productivity was better, our regulations were easier, you could get stuff done. So the vision that we're gonna keep a regulatory, slurotic economy with huge subsidies and behind tariff walls. And somehow that is going to make us better off and do anything about China, we'll just go ahead and do what they want.

 

It's not good economics, it's not our place in the world, and it's not really good national security. Nobody ever won a great power competition by putting up trade barriers against somebody else who was more innovative and better able to do things like manufacturing. So I'll cut that here.

But I do think that there's a fundamental bleeding of the narrow defensible national security grounds to worrying about China and what they do. Into this idea that the way to win the great power competition with China, if that's what we're about, is to put up huge tariff barriers and make electric drills in the US at five times the cost of what we can buy them from China, I think that's a huge mistake.

Bill Whalen: I'm glad you referenced this show, John, because by the end of this year we will have done about 150 of these episodes, four plus years of taping this. And I assume the three of you must like each other because you keep doing this. But what's special is when you fellows do disagree, it's polite, it's civilized.

There's nobody throwing down their microphone and stomping off, nobody's insulting anybody. It's a good spirited debate, the likes of which is very scarce in this day and age.

John Cochrane: Well, I do like these guys, and more than like them, I respect them, they know a lot. And one of my greatest pleasures in life is being proved wrong about something, and this show gives me that pleasure on a regular basis.

The only thing I would ask is, our moderator needs more often when I say something, Tom, and then Niall says, John, you bloody idiot, here's how it really works. Give me a little more chance to apologize and say, Niall, you're right, sorry, I didn't think about that, cuz that is really.

And I'll tell you, one of the things I love about this show is it's a chance once every week or so, to nail down my incredibly busy colleagues. And force them to have a structured conversation with Bill, forcing us to shut up every now and then, and move on.

I love these guys, I would see them around the water cooler, but we wouldn't have such a good structured conversation, and I wouldn't learn as much without the format of the GoodFellows. So it's just great fun for me.

Bill Whalen: Somebody who didn't have a problem shutting up, John, was the late, great Calvin Coolidge.

And I mentioned that because you happen to be a member of the board of trustees of the Calvin Coolidge Presidential Foundation. I didn't know this, John, until I went stumbling on that website side to look at Coolidge speeches one day, and there was John Cochrane on the board of trustees, holy smokes.

But I mentioned Coolidge, John, because this is the 100th anniversary of the centennial Coolidge running for re-election. Keep cool and keep Coolidge is some variation of that. I don't know if we're gonna see keep cool and keep Kamala on this election or not, but I wanna read to you a quote that he said in 1924 and get your thoughts on this.

Here's what Coolidge said, it's a speech called Responsibility of America. Quote, I civilization cannot stand still, the institutions under which it develops cannot remain unchanged. Change is inevitable, and there must be intelligent capacity to direct that change in the right way. The key phrase there, John, intelligent capacity to direct that change in the right way.

Now, it seems to me, John, that we don't lack in this country intelligent capacity in business, and public sector, and academia, and so forth. But, John, there is a challenge to channel it the right way, wouldn't you agree?

John Cochrane: Absolutely, and let me riff a little bit on what you just said.

Yes, I've enjoyed my time with the Coolidge Foundation part I got there because Amity Schlaes, who runs it, is a dear friend and a wonderful person and a great author by the way. We do often our book recommendations and anything by Amity Schlese is a good thing to do.

The Calvin Coolidge slogan that I like most is return to normalcy after the progressive erade. Boy, wouldn't it be nice if our candidates just said return to normalcy, which I think is important. You mentioned institutions, and certainly one of my biggest worries is the fraying of american norms and institutions.

We do not elect a king every four years. We have this wonderful institutional framework, which is fraying at the edges, but talent at the top is really important. Back to the history I'm learning a lot. I'm reminded of a lot of lessons from a history of the Rome podcast.

And there's times when there's talented emperors and times when there's not so talented emperors. It makes a huge difference. And you are right. George Schultz kept saying this, too, we are not recruiting talent. Whatever one must say about our current presidential candidates, they are clearly not the most talented people in the country right now with sort of ability to govern and get things run.

And that's in the broad sweep of history. It would be nice to have really good, talented people putting those institutions back together. And one last thing people may not know about Coolidge. He, together with Treasury Secretary Millen, lowered the marginal tax rate from federal tax rate from 70% to in the 20s.

It was long, hard work, and it was the first great supply side tax cut. Mellon knew exactly what he was doing and got Coolidge to do it. Coolidge also patiently slashed away at the federal budget. And the 1920s were an economic boom, plus a boom in revenue for the federal government, and no small part to that.

So that Reagan did not invent all that, Coolidge did, and it worked pretty darn well for him.

Bill Whalen: One thing I failed to do in preparation for this, John? I was gonna look up what kind of dogs at Calvin Coolidge owned, because I imagine presidents, almost all presidents own dogs.

I don't think Trump had a dog in the White house, but most presidents do. And this leads us to the topic of the portuguese water dog. Your Portuguese water dog's name is?

John Cochrane: We have Bia, our second portuguese water dog. Our beloved Angie was the first portuguese water dog, and they have been great, great companions.

It started, my daughter Sally went through the I want a dog phase, and my daughter Sally is unbelievably dogged and persuasive. Two years of campaigning for dog, but she was also allergic. So we were looking for a hypoallergenic dog and found portuguese water dogs. So Angie was the first, Bea is the second.

They are wonderful, tremendously loving dogs. I called ours, both are Beth's shadow because they follow Beth around like a shadow, warning, they are loving, but also very energetic. So if you can't take the dog out running or walking for several miles a day, you're gonna have a fur ball running, bouncing around your walls.

Bill Whalen: All right, let me good naturedly tease you in two regards, John, and feel free to push back very hard. Number one, the Cochran's from Chicago were just imitating the Obamas, who had a portuguese water dog.

John Cochrane: No, we got there first. In fact, we think there's a line from our portuguese water dog to the Obamas via the Obama's decorator who met our dog.

And then the Obamas got a portuguese water dog. So we'll claim to have the idea. So this is back when we were all in Hyde park and our kids going to lab school. But what the Obamas don't know is that all portuguese water dogs are libertarians. They believe in property rights, and now they don't always get it right.

Our dog, Bia, thinks that my socks are her property, but nonetheless, there we go.

Bill Whalen: Okay, my second shot at you, John. John Cochrane, champion of the free market. You want a dog, is championed by Barack Obama, and before that, Ted Kennedy. Hardly champions of the free market, have a frou frou liberal dog, John?

John Cochrane: No, no, just got to meet Bia and you'll find out they have secretly libertarian dogs.

Bill Whalen: Okay, well, the reason why we're doing this is because you have suggested to Niall Ferguson he needs a Portuguese water dog. I suggested he get a Labrador retriever. Everybody has an opinion on a dog, but what do you think Niall will end up with?

John Cochrane: No, Niall will end up with whatever Ayan thinks Niall should end up with if he's smart.

Bill Whalen: I think that's the answer. I can't tell you how many times I've seen families bring in a dog for the kids, ostensibly, and it becomes the mother's ex child because just the kids quickly don't wanna take care of it, the father is not around to take care of it.

The wife takes control of the dog.

John Cochrane: And that is, we went into this knowing that. And so Beth also found a dog that she absolutely has loved, which is why we got a second one.

Bill Whalen: Okay, John, we're getting short on time here, so I wanna wrap up with two things you're working on, books.

First of all, you're working on a book on the Euro, of all things. The title Reforming the Euro, Lessons From Four Crises. That's two crises less than Nixon, but what were the crises around the Euro?

John Cochrane: Boy, boy, this is great fun. And we are turning the manuscript in today as I speak.

So those of you who watch the look for the grumpy economists and wonder where I've been. Sorry, I've been on deadline with getting this book finished. I'm working with two co authors, Klaus Mazuc, who is at the ECB, and Luis Garicano, an economist who was also once a member of the European Parliament.

And it sort of started as applied fiscal theory to the Euro, or at least that's how I was brought along. But the Euro, a currency union, faces this fiscal question quite squarely, which is if you have a currency union, but you don't have a fiscal union, every country has an incentive to borrow a ton of money, get in trouble, and then say, ECB, we're in trouble, bail me out, bail me out, right?

That's a problem. Now, the initial architects of the Euro really understood this, and as we dug in, they really set up a structure that was going to protect against this. But not every founding structure is completely finished. And nobody imagined that there would be sovereign debt crises and so forth.

So what happened to the Euro? They have this beautiful structure, and then a series of crisis, the financial crisis, the sovereign debt crisis, the zero bound era, the inflation, the war and whatever. And each time nobody thought this would happen when they set up the Euro. But the ECB found itself the only game in town and had to start bailing out Greece.

And Greece's bondholders, they felt they had to, and let's give them the benefit of the doubt of that. And that's fine, every institution evolves, but the problem is now the system of incentives that they had set up initially to say to countries, look, if you borrow money and get in trouble, we're not gonna bail you out, so you better get your act in order.

That system of incentives is broken down so you do what you have to in a crisis, but then you should patch it up afterwards and get the incentives back together again. So our book is about the story about how the ACB did what it felt needed to do, how there was the beginning of a reform effort to put the incentives back in place that kind of failed, and now here we are.

Everybody now expects the, The ECB to come riding to the rescue in any crisis, which means all the incentives to reform are gone. And so how do we put that back? And it's not really critical of the ECB they did what they felt they had to do, and we don't really argue with that.

But it's about, let's get that structure back in place so that you're not everybody relying on the ECB. And then if everybody expects a bailout, of course, the next crisis, the ECB has to bail out. And we're at the point now where the next crisis might be so big the ECB can't, Europe really needs to do this reform.

So that's the brief synopsis of the book, and look for it on my website this afternoon after I get almost.

Bill Whalen: And then finally, John, you're working on a book on past grumpy work.

John Cochrane: Yeah, that's my next long term project, the grumpy economist has been going on for ten years now.

I've got answers to all the interesting out of the box answers to all the interesting economic questions. I guess I'll pitch the tax one we talked about, rather than raise taxes, cut taxes, tax the rich. No, here's a way to square the circle and get what everybody wants, more tax revenue if you need that, but less damage to the economy.

So I got answers for that on healthcare, on banking regulation, trade tariffs, social programs, you name it. And the hard part here is, of course, distilling down all of my blah, blah, blah, blah, blah for ten years into something that you can read on an airplane flight. So that's a project coming up, yeah.

Bill Whalen: That sounds like a fun project. And the final thing, John, you recently did a podcast with John Hartley. Can you tell us a little bit about that?

John Cochrane: This was just an interview back and forth of me. John Hartley has started a podcast called the Capitalism and Freedom in the 21st Century.

He did a lot of interviews of economists and that then we're moving that podcast to a official home at the Hoover institution. It'll become the official podcast of the economic policy working group. So it'll broaden its scope a little bit to what's going on in economic policy as Hoover.

And we did an inaugural one where he interviewed me and we talked about policies more generally.

Bill Whalen: Okay, well, save time for Goodfellows, John, please, GoodFellows first.

John Cochrane: Of course.

Hey, John, I think that's gonna wrap up this conversation.

Bill Whalen: She's not in the room, but I'd like to apologize for your dog, it was nothing personal.

I just thought we'd have a little fun with that, and we don't have an official mascot for GoodFellows, maybe she can be our official mascot.

John Cochrane: Bea would make a great mascot for the show.

Bill Whalen: Okay.

John Cochrane: She's got energy and enthusiasm, although not quite as much intelligence as at least the two other members of our team.

Bill Whalen: And you said nothing about the moderator I'll take that a note.

Bill Whalen: John, thanks for doing this today, I think the voice sounds good, but get better, my friend. Heal up and we look forward to doing regular GoodFellows very soon.

John Cochrane: Thanks.

Bill Whalen: So that's it for this mini episode of GoodFellows, we hope you enjoyed the conversation.

And keep in mind we're doing this not just with John, but also with Niall Ferguson and HR McMaster along with our regular GoodFellows episode. And the best way to keep track of what you're up to is subscribe to our show on YouTube, and recommend it to people and like it.

Send us up that chart on YouTube if you wouldn't mind, we like algorithms, if you will. On behalf of John Cochrane, our missing in action GoodFellows, Niall Ferguson, HR McMaster, the very talented people behind the scenes here at the Hoover Institution have put these shows together. We hope you enjoyed today's conversation and we'll be back soon with a new one.

Till then, take care, thanks for watching.

Presenter: If you enjoyed this show and are interested in watching more content featuring HR McMaster, watch Battlegrounds also available at hoover.org.