Speaker

John Cochrane

John Cochrane

Financial economist and Senior Fellow at the Hoover Institution, Stanford. For most of his career he was Professor of Finance at the University of Chicago Booth School of Business, where he became one of the leading figures of the Chicago school’s efficient-markets tradition. He is the author of the standard graduate textbook Asset Pricing and writes the widely read blog ‘The Grumpy Economist’.

Cochrane’s academic work centres on asset pricing — the cross-section of returns, the equity premium, and the question of what moves asset prices over time — and on monetary economics, where he is the foremost proponent of the fiscal theory of the price level. His long-running book project, The Fiscal Theory of the Price Level, attempts to derive all of monetary policy from a single present-value equation. He is the son of the historian Eric Cochrane and the translator Beth Cochrane, married to economist and novelist Beth Fama, and a national champion glider pilot.

Core positions

Asset prices move on discount-rate news, not cash-flow news. Cochrane’s central empirical claim is that stock and bond prices swing far more than any forecast of future dividends or earnings can justify; the movement comes from time-varying discount rates — equivalently, a risk premium that rises and falls. This implies money can be made buying low and selling high if one can wait, and it dissolves many apparent ‘puzzles’ (high real rates abroad, the equity premium) into questions about risk that economists cannot fully name rather than market failures to be corrected from an armchair.

Inflation is fiscal, not monetary in the textbook sense. On the fiscal theory of the price level, money has value because the government can soak it up through future taxes, so the price level adjusts to equate the real value of nominal government debt with the present value of future primary surpluses. Inflation arrives when people lose faith in the government’s ability to repay its debt and try to dump it for goods — a sudden run, not a slow slide. He has warned for years of a US roll-over crisis while insisting that economics offers only conditional predictions, never unconditional forecasts.

A libertarian reformer with one habit of mind. Cochrane reduces problems to a few fundamental principles and a logical structure — one equation at the head of Asset Pricing, one present-value equation behind all of monetary policy, even portfolio theory applied to gliding. He brings the same cause-and-effect lens to policy: ‘health-status insurance’ that lets people insure against becoming expensive to insure; the cross-subsidy ‘original sin’ that kills competition in healthcare; and the regulatory state as the main barrier to a wealthier, healthier, cleaner economy.

In the wiki