Today, John Cochrane, Mickey Levy, Kevin Warsh & I spoke at a roundtable discussion on the Fed’s monetary policy at the Hoover Economic Policy Working Group. Cochrane talked about the fiscal side, Levy about the best inflation measures, Warsh about regime change, and I talked about the big deviations in policy from standard monetary policy rules. Many of the speakers had written about these issues for a year or so, but bringing them together revealed different perspective but with a common theme: the main concern was the high inflation rate induced by the new policy actions, whether the super low policy interest rate, the high money growth, or the big balance sheet expansion.

Some talked about how the Fed got into this difficult situation, and that brought back old memories

Bill McGurn make a lot of good references to Milton Friedman in a video just posted on the Wall Street Journal web site. We hear Milton talking about the power of the market. https://www.wsj.com/video/series/main-street-mcgurn/wsj-opinion-joe-biden-milton-friedman-and-a-lesson-in-inflation/E3400D7C-AA91-49CC-8341-65721E37BDF4 It is a great video and I always use it my Economics 1 introductory economics lectures at Stanford. Below is a review slide from the lecture on September 29 of this year with the link to Friedman’s video at the end, and here is the link: https://www.youtube.com/watch?v=R5Gppi-O3a8

Of course, a big reason to refer to Milton Friedman these days is the ongoing increase on inflation which virtually every person is now seeing and talking about. That

I am very happy to say that the new edition of Principles of Economics v9.1 is now officially published. Here is where you can find it on the FlatWorld web page: https://catalog.flatworldknowledge.com/catalog/editions/principles-of-economics-9-1.  It has been pleasure for me to continue to work on this edition with Akila Weerapana of Wellesley College, who brings terrific experience and knowledge of teaching basic economic principles.

The book continues to cover basic economic principles at the introductory level, and it shows how economics is more important than ever. It remains grounded in the central idea that people make purposeful choices with scarce resources and interact with others when they make these choices. The new edition covers key issues related to COVID-19 and

Today the Editorial Board of the Wall Street Journal wrote that the Federal Open Market Committee has shown “little interest in reeling in what has been the most reckless monetary policy since Arthur Burns roamed the Eccles Building.”

Last month I published an article, which Project Syndicate cleverly headlined “Is the Fed Getting Burned Again?” It summarized research consistent with this Wall Street Journal editorial. I presented the research in detail in an April 2021 paper “The Optimal Return to a Monetary Policy Strategy” which I gave at the City University of New York.

This story goes back to memo reprinted in the book Choose Economic Freedom which George Shultz and I published last year (and because we quoted Milton Friedman so much he is a coauthor.) The memo was

The Business Cycle Dating Committee of the National Bureau of Economic Research has a very important job. It is responsible for determining the peaks and troughs of business cycles in the United States. It thus decides how long recessions are and also how long expansions are. The Chair of the Committee is Professor Robert Hall of Stanford University.

The latest decision of Committee occurred just this week on July 19, 2021. The Committee decided that a trough in monthly economic activity occurred back in April 2020. They also determined that the previous peak occurred back in February 2020. Thus the recession, measured by the decline in employment from peak to trough, lasted only two months. It was the shortest recession in United States history. It was completely caused by

Today I  published an article in Project Syndicate. It starts with a memo sent fifty years ago, on June 22, 1971, by Fed Chair Arthur Burns to President Richard Nixon. Inflation was rising and Burns wrote to Nixon that the Fed was not to blame. Rather the economy had changed and a new policy – a wage and price freeze and controls—was needed.  

The memo convinced Nixon, and wage and price controls were implemented. But the intrusive nature began to show and the government controls were failing. Moreover, the Fed let the money supply increase, inflation rose to double digits, and the unemployment rate rose.

Last year, George Shultz and I wrote a book about this period, and we included the full text of the Burns memo because it is a perfect example of how bad ideas lead to bad

This week Raghu Rajan spoke at the Hoover Economics Policy Working Group on “Going the Extra Mile: Distant Lending and Credit Cycles” a joint paper João Granja and Christian Leuz. Here is a video of his presentation https://www.hoover.org/events/policy-seminar-raghuram-rajan-1 along with the slides https://www.hoover.org/sites/default/files/going_the_extra_mile.pdf and the paper itself https://www.hoover.org/sites/default/files/going_the_extra_mile_may_3_2021.pdf

Raghu focused on the causes of the Global Financial Crisis of 2007-2009. He brought entirely new data to the question of what caused the crisis. He examined the distance between lender and borrower. Raghu argued that greater distance is a measure of increased risk, holding the technology of making loans, which can

Yesterday, I gave a keynote talk at the tenth American Economic Association Conference on Teaching and Research in Economic Education (CTREE). I have been teaching economics for 53 years. I love teaching economics. I love researching economics. And I love doing policy in economics. So it was a pleasure to talk about teaching economics, and the questions from other economic teachers and researchers in the audience were really good. Here are the slides. I talked mainly about teaching introductory economics. My main message is that students and teachers have benefited greatly, and can benefit greatly, from the new technology–including Zoom– but that basic economic ideas still work just fine when applied to the recent pandemic around the world, especially if we learn how to use the

Yesterday, at the Hoover Economic Policy Working Group (EPWG), David Splinter of the Staff of the Joint Committee on Taxation discussed a paper he wrote with Gerald Auten of the Office of Tax Analysis at the Department of Treasury. A video of Splinter’s presentation, including many questions and answers, is posted on the EPWG web page here along with the paper “Income Inequality in the United States: Using Tax Data to Measure Long-term Trends” My internet went down so the video is really nice to have. There are also links there to Splinter’s excellent web page.

The paper and presentation explore in fascinating detail various data sources that bear on the widely reported finding of Thomas Piketty and Emmanuel Saez that the income distribution has widened. By adjusting for key

In a new paper I examine the ways for the Fed to engage in a reentry to a rules-based monetary policy. For several years, starting around 2017, the Fed had begun to move to a rules-based monetary policy that had worked well in the US in the 1980s, 1990s, and in other years. Many papers were written at the Fed about the benefits, and the Fed began to report on rules-based policy in its Monetary Policy Report.

That move was interrupted in the first quarter of 2020 when COVID-19 hit. The Fed took a number of actions to deal with the effects and by most accounts these actions were special and were not consistent with rules-based policies. The Fed also stopped reporting on rules-based policy in its Monetary Policy Report.

Later in 2020 the Fed completed a review of its monetary

This spring we will be offering an open online version of the Principles of Economics course. To get more information and sign up, go to https://www.edx.org/course/principles-of-economics. The course begins on Monday, March 29, 2021. It is self-paced so students can move ahead at the most appropriate pace. The video-lectures are based on my Stanford course.  People who watch the video-lectures and take short quizzes can earn a Certificate. There is an on-line forum on which Yiming He and I will be commenting and answering questions.

This on-line course covers all of economics at a basic level.  It stresses the key idea that economics is about making purposeful choice with limited resources and about people interacting with other people as they make these choices. Most of those

Today the Federal Open Market Committee described its upcoming plans for the federal funds rate through 2023.  It is good, as I wrote last month on this blog that “Rules Are Back In The Fed’s Monetary Policy Report,” after a short absence, but it would more helpful if the Fed incorporated some of these rules or strategy ideas into its actual decisions.

Apparently this did not happen, as the chart below shows. The chart gives the FOMC’s projection of the federal funds rate and three different rules-based paths for the federal funds rate through 2023. This FOMC projection is the “value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the specified calendar year,”

The Federal Reserve’s latest Monetary Policy Report just released on February 19, 2021 has a whole section on monetary policy rules.  That policy rules are back in the Report is a very welcome development. It re-initiates a helpful reporting approach that began in the July 2017 Monetary Policy Report, as I discussed here, when Janet Yellen was Fed chair. The approach continued under Chair Jay Powell in 2018, 2019 and early 2020, but it was dropped in July of last year. The good news is that it is back.

Five rules are discussed in the February 2021 Monetary Policy Report, especially on pages 45 through 48. To quote the Report, these include “the well-known Taylor (1993) rule, the ‘balanced approach’ rule, the ‘adjusted Taylor (1993)’ rule, and the ‘first difference; rule.  In

The new one-hour program “Thomas Sowell: Common Sense in a Senseless World,” is a must watch. Beautifully narrated by Jason Riley of the Wall Street Journal, it tells the amazing life story of Thomas Sowell, born in 1930 in North Carolina, raised by a great aunt after both his parents died, moved to Harlem at 8 years old, joined the Marines, went to Harvard for college and Chicago for a Ph.D., taught at Cornell and UCLA, finally settled at the Hoover Institution at Stanford University, and in the process became “one of the greatest minds,” as Riley puts it, “of the past half century.”  

Free to Choose Network just announced that they are releasing this fascinating documentary “for airing on public television stations across the country – and for streaming on Amazon Prime,

Exactly one year ago, on January 15-17, 2020, a special meeting of the Mont Pelerin Society was held at the Hoover Institution at Stanford University. The Mont Pelerin Society was founded in 1947 for the “preservation and improvement of the free society,” and the 2020 meeting was the 40th anniversary of the meeting held at Stanford in 1980.

It is difficult to even think about all that has happened in the year since that meeting. The Coronavirus—not even mentioned at that meeting a year ago—has wreaked havoc around the world, and changed government policy in major ways. Nevertheless, the presentations at the meeting are still quite relevant, perhaps more relent than ever before, as a host of speakers presented new ideas and actions for a free society, looking at the past as

Last week at the American Economic Association meetings, held online, many papers focused on Covid-19. A good example was the session organized by Dominick Salvatore which included Jan Eberly, Raghu Rajan, Carmen Reinhart, Joe Stiglitz, Larry Summers, and me. Most papers focused on the economic policy impact of the Coronavirus. I focused the “supply side” policies rather than on the “demand side” policies. Using a simple model, key facts naturally emerge if one simply divides retail sales into store-sales versus non-store-sales or electronic sales. To see this, take a look at these three figures. 

The first figure shows that the onslaught of the pandemic in the second quarter of 2020 immediately caused a sharp decline in retail sales less non-store sales in the United

Today I published an article in Project Syndicate called “The Stampede from Silicon Valley.” The fact-based message of the article is clear: Tax, regulatory, and other economic burdens that firms face in California are creating a stampede to other parts of the country—especially Texas. There are many examples–Hewlett Packard Enterprise, Oracle, Tesla, and even venture-capital firms like 8VC, who announced the exodus with an WSJ op-ed.  State and local policymakers, who want to prevent an even larger outbound stampede, need get to work.  There are some positive signs to build on, such as the California voters’ approval of Proposition 22, which frees up gig workers, and the voters’ rejection of Proposition 15, which would raise taxes on business. As one of the recent departures from

As the Wall Street Journal reported and I tweeted yesterday, Senators Chuck Schumer and Patrick Toomey made important news when they agreed that with the new Coronavirus relief legislation, “the $429 billion would be revoked and the Fed wouldn’t be able to replicate identical emergency lending programs next year without congressional approval”

This is a welcome development because it is a start on the best monetary road back to a stronger economy. With the vaccines on the way and with markets functioning again, this is the time for the Fed to get back to a more rules-based monetary policy that it was moving toward before the pandemic struck.  

This favorable development owes much to the outspoken insistence and careful reasoning of Senator Toomey. He argued that the Fed’s new

Today is George Shultz’s 100th birthday. There were so many wonderful celebrations and tributes, and many more to come. My family—Allyn, John, Jennifer, Josh, Olivia, Andrew, Jack, and I—walked over to his house and sang Happy Birthday as loud as we could.  Many of the beautiful special tributes are summarized here  https://www.hoover.org/george-p-shultz-100-celebration  

At a Hoover Fellows Roundtable on economics and national security, I started by quoting something George Shultz said almost 50 years ago when he served as Secretary of the Treasury.

“Economists have a particular responsibility to relate policy decisions to the maintenance of freedom, so that when the combination of special interest groups, bureaucratic pressures, and congressional appetites, calls for still

I gave the Peter G. Peterson Distinguished Lecture on “National Security and Fiscal Policy” at the Foreign Policy Association (FPA) in New York last week. Henry Fernandez gave a kind introduction and Tom Michaud moderated with great points. And thanks to FPA for the book edited by Michael Auslin and Noel Lateef, American in the World 2020.

Four years ago, Paul O’Neill gave the Inaugural Peter G. Peterson Lecture. Pete Peterson was in the audience. Paul and I served together in the George W. Bush Treasury, and we became good friends. Paul focused on the deficit in the 2016 lecture; he learned from Pete and I learned from both.   Last year, another good friend, John Lipsky gave the Peter G. Peterson Lecture, and he wondered creatively how long the economic expansion would last. It

The following article by John Cogan and me responds to commentary on our Wall Street Journal article and emphasizes the importance of economic policy.

The Importance of Economic Policy in the 2020 Election

John F. Cogan and John B. Taylor

October 11, 2020

We published an article in the Wall Street Journal last Wednesday entitled Trump’s “Economic Dream Come True.” It generated a huge amount of commentary, both via the Wall Street Journal’s on-line platform and on social media more generally, including many entries on Twitter.

Our main purpose in writing the article was to make the point that the strong and broad-based growth in the U.S. economy since early 2017 up to the onset of the Covid pandemic is a result of the sound economic policies of lower tax rates and

We just finished the second week of Economics 1, Stanford’s introductory economics course, and the namesake of this blog and my twitter account.   So far it has been fun, and for the same reasons that I mentioned years ago when I started teaching the course: (1) “I love to teach.” (2) “I love to do economic research” and teaching is “a natural extension of research.” (3) “I love economic policy—the application of economics to government as well as to decision-making in business.” I hope learning economics is as much fun for the students.

But things are so much different now.  A year ago, I gave lectures in a large lecture hall, Stanford’s Cemex Auditorium. It is all online now, and virtual and remote.  Students Zoom in to the lectures and the smaller sections taught by a

In a new Policy Brief just released by the Stanford Institute for Economic Policy Research,  Jack Mallery and I show that In-person and online learning go together
Yes, America must prioritize in-person K-12 elementary and secondary schools as soon as it is safely possible. Quality in-person learning is essential.
But America must also increase on-line access whether or not in-person schools open now or later  Data available since the start of the pandemic has revealed a big educational divide in on-line access. It is much less available for people who have low income.
Unfortunately, the in-person versus on-line issue has become polarized politically with the presidential campaigns and other campaigns staking out strong positions on one side or the other. But the choice should not

The importance of remittance flows to low and middle income countries is the subject of an important recent tweet from William Easterly @bill_easterly. His tweet includes this amazing chart:

What is most striking about the chart is the sharp increase in remittance flows around 2002 and 2003. But why? This was the time that there was a huge new emphasis on the potential importance of these flows.  It was also a time when a special policy effort was made to  keep the flow of remittances going and increase them with the new proposals and initiatives. Could there have been a connection? It is also important to remember that some efforts were made to counter pressures to combat the flows because of concerns about the funds going to terrorists.
I was Under Secretary of Treasury for

Yes. That’s the San Francisco Chronicle digital headline, and it’s true all over the United States of America, with some exceptions like Mount Rushmore last night and DC tonight.  Back in 2010, I started writing on each July 4th about the the exploding fireworks and comparing them to the exploding long term projections of the federal debt by the Congressional Budget Office (CBO). The exploding  debt charts looked so much like the exploding Fourth of July fireworks, as you can see blogs from year’s past 2010, 2011,  2012, 2013, 2016, 2017, 2018, 2019
One can only hope that such writings and opeds and testimonies had some influence, and it is good that the budget situation improved compared to some of the earlier projections.  But this year, not only are fireworks missing, so are

Thomas Sowell has a new book. It is terrific and timely. It is called Charter Schools and Their Enemies, officially published today, June 30, 2020, which happens to be his 90th birthday. Happy Birthday, Tom, and thank you writing such a beautiful book.
The book and his recent Wall Street Journal article “Charter Schools’ Enemies Block Black Success” about the book, focus on the enormous success of charter schools in delivering better education, especially to the predominantly black and Hispanic students in low income neighborhoods. One example, discussed especially in the Wall Street Journal article, is the Success Academy in New York City. The Success Academy started back in 2006, and it has grown from 1 to 47 schools. And it is a success.  All involved—those with the idea, the

This summer we will again be offering Stanford’s Principles of Economics course online.  The course is more important than ever.
We will offer a for-credit online Principles of Economics course for matriculated Stanford students, students from other colleges and universities, and high school students in Stanford’s Summer Session. To register for the course, go here. The course starts on Monday, June 22 with the first week’s video-lectures and other course content. This is the same as the on-campus course, Economics 1, which I give at Stanford during the academic year, and it fulfills all the same requirements. In addition to watching the video-lectures online, you get course credit by doing regular weekly graded homework, taking three tests online, and participating in a weekly

A pressing research issue with deep policy relevance concerns how econometric models should be adapted, changed, or modified in light of the COVID-19 pandemic.  A new Webinar series–Macroeconomic Modelling and Pandemics–has been created to examine this issue, to exchange views among researchers, and to bring more attention to the policy questions.
Here is a list of topics in the series on the Hoover website, including previews of coming attractions with more to come. You are welcome to click on a topic, watch the video, or inquire about future events. Videos of presentations and question/answer sessions will be posted, as have been recent ones including by Harald Uhlig on “Macroeconomic Dynamics and Reallocation in an Epidemic,” Mathias Trabandt on “The Macroeconomics of Epidemics,”

Two months ago, on March 14, 2020, we cancelled our annual Hoover monetary policy conference at Stanford on “Central Bank Strategy Reviews and Their Global Impact” then scheduled for May 1, 2020. The reason was that Stanford declared that “university units should cancel or postpone events they are hosting that involve more than 50 participants.” We were all were disappointed, as the conference was to give a careful review of the monetary policy reviews of the European Central Bank and the Federal Reserve, building on the experience of the May 2019 Hoover monetary conference.
But in the weeks since March 14, monetary policy has changed so dramatically that the issues are much bigger and more fundamental than a review of review would suggest. Effective March 16, 2020, the Federal Open

Deepak Lal, an outspoken champion of freedom and market‐​oriented policies throughout the world, died yesterday in London.  I heard the sad news from my friend Ed Feulner who called on the phone tonight, and I just read the beautiful tribute by Ian Vasquez Remembering Deepak Lal. Deepak was professor emeritus at UCLA and the University College London, and a senior fellow at the Cato Institute. He earlier worked at the Indian Foreign Service, advised the Indian Planning Commission, and wrote many good books.
Deepak also served as President of the Mont Pelerin Society (MPS) from 2008-2010, and he and his wife Barbara attended the most recent meeting of the Mont Pelerin Society at the Hoover Institution at Stanford in January 15-17 of this year, where he gave the closing toast as shown