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

Seven years ago, I decided to create an on-line version of the on-campus Principles of Economics course—we call it Econ 1—that I had been giving for many years. I recall that we spent a lot of time and effort on this project back in 2013. Each day after giving a lecture to hundreds of students, I went to a recording studio and gave the same lecture, but divided it into shorter segments, designed for easier on-line viewing.  We edited the videos, mixing in graphs, photos, quizzes and dynamic illustrations. We captioned and indexed the videos for easy searching. We put the videos on a fun and easy-to-use on-line platform.  We added review and study material to the platform and set up small on-line discussion sections and chat rooms. We provided links to make a complete self-contained

Section 2201 of the CARES (Coronavirus Aid, Relief, and Economic Security) Act authorizes direct payments, “Recovery Rebates,” to individual households and families.  The Section is called the “2020 Recovery Rebates for Individuals” and is estimated to total $300 billion–the sum of $1,200 to individuals ($2,400 for joint returns) plus $500 for each qualifying child. The amount is reduced for taxpayers earning over $75,000 annually (or $150,000 for joint returns) with no payments for individual taxpayers earning over $90,000. The useful Stimulus Check Calculator from Kiplinger’s gives more details.
While understandable on pure humanitarian grounds, these payments should be expedited it they are to benefit the economy as it is hit by negative shocks during the pandemic. It is good

Today I published a column in Project Syndicate on fiscal policy. I am positive about pro-growth effects of the tax reform in the 2017 tax act and of the greater use of cost-benefit analysis in the recent regulatory reform effort. And the recent trade deals—the USMCA and “phase one” with China—take away some threats of trade wars.
But there is still a fiscal policy problem due to the growing federal budget deficit and debt. Fortunately, this problem can be addressed in way that promotes economic growth. Showing how this can be done with structural budget reform is the purpose of the column.
One issue, however, is taking steam out of such a structural reform effort. It is a new focus on reform of the automatic stabilizer part of the budget. But these automatic stabilizers do not need

The Hoover Institution has initiated a fascinating Perspectives on Policy video series in which experienced experts give clear explanations of key policy issues assisted by the latest in animation technology. This is not the typical video of talking heads as you might expect.  In this imaginative series tabletop cartoon figures join the experts, move around the screen, bend and twist to show emotions, and even wave at each other from time to time. Topics range from economics, including government entitlement reform and innovative market-based environmental policies, to politics, including health care and immigration.
This week Perspectives on Policy launched a whole new 5-minute video on monetary policy and the Federal Reserve.
I do most of the talking in this video, but I am joined

Yesterday I testified at the Committee on the Budget of the House of Representative.  John Yarmuth chaired, and Steve Womack was the ranking member. The Committee titled the hearing “Reexamining the Economic Costs of Debt,” which was quite different from the title “Why Congress Must Balance the Budget” of a hearing of the same House Committee at which I testified only a few years ago in 2015.
At the earlier hearing I showed that basic economic theory grounded in real world data implies that high federal government debt has a cost: it reduces real GDP and real income per household compared to lower debt levels. At yesterday’s hearing I reported that a reexamination of the economic costs yields the same results. A fiscal consolidation plan which reduced debt to GDP would lead to an

Today we remember September 11, 2001 and all that has happened in the 18 years since then.
I was in a hotel room in Tokyo when the first plane hit the World Trade Center, recently sworn in as Under Secretary at Treasury. We immediately cancelled our meetings and by the next morning we were on a C-17 military jet Flying Back to Treasury on 9/11. When we got back, the city was on alert. DC was a logical place for another attack, and the secret service was particularly concerned about security around the White House. The United States then launched its first post-9/11 attack on terrorists from a very unusual Financial Front in the War on Terror. As President George W. Bush put it, “the first shot in the war was when we started cutting off their money, because an Al Qaeda organization

Two weeks from today, I start teaching Economics 1, Stanford’s introductory economics course, and the namesake of this blog and my twitter account.   I am looking forward to it, and for the same three reasons that I gave 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.”
But things have changed dramatically since I started teaching this course decades ago.  In many ways, it is like a whole new course. And that’s exciting for me and for students.  Economics 1 is more important now than ever as the world becomes more computerized and quantified. The course now shows

Last week Raghu Rajan and I coauthored an article for the Financial Times. We argued that the IMF should no longer continue the tradition that the Managing Director of the International Monetary Fund be a European. Instead, it should “break the mould by appointing the best possible candidate to the job, regardless of nationality,” and “hold an open competition” for the position.
As the G20 Eminent Persons Group on Global Financial Governance (on which we served) recommended, the IMF’s role needs to change to meet the requirements of a different word than existed in the year of its founding 75 years ago.
On this the 75th anniversary of the founding of the IMF and the World Bank, we need to recommit recommit to the spirit of Bretton Woods.  Indeed, this was the main message of the

A few days ago, an amazing thing happened when Thomas Brand (@thlbr) tweeted about a short article I posted on my blog EconomicsOne.com. My post was old–posted 10 years ago on October 3, 2009–and I titled it “A Beautiful Model, A Clear Prediction.”
It was about the effect of the minimum wage on employment and the wage. The basic supply and demand model was displayed with the following graph. It was drawn from the Principles of Economics (Economics 1) course that I taught at Stanford in the Fall of 2009, and will still be teaching at Stanford in the Fall of 2019 (and in online form this summer).
The amazing thing was that Brand’s tweet resulted in a huge amount of renewed traffic and hits to the blog, many more in 2019 than in 2009.  Also, unlike 2009, much of the traffic in 2019

Four former chairs of the Fed  wrote in the Wall Street Journal today about the importance of Fed independence. I agree, but their article should have emphasized that independence is not enough.  Economic performance has been affected by large shifts between more rules-based and less rules-based policy by the Fed without any concomitant change in the legal basis for independence. De jure independence has not prevented the Fed from harmful departures from rules-based policies.
The absence of a rules-based policy at the Fed in the 1970s was accompanied by high inflation and high unemployment. The move to rules-based policy during the two decades starting in the early 1980s was accompanied by improved price stability and output stability. And a move away from rules-based policy

I just spent a wonderful few days at the 2019 Africa Meeting of the Econometric Society held in Rabat, Morocco with the central bank, the Bank Al-Maghrib, providing an excellent venue.  Congratulations to the Bank Al Maghrib for its 60th anniversary year and also to the Econometric Society for its upcoming 90th anniversary in 2020.
One sees positive economic changes coming to this part of Africa, and it is good that the Econometric Society is meeting here. Morocco is looking to join the Economic Community of West African States (ECOWAS) which includes, among other countries, Nigeria, Senegal, Côte d’Ivoire, Ghana, Liberia, Mali, Niger, Benin and Togo. I have travelled to these countries and worked on the US-Moroccan Free Trade Agreement a while back. The idea of an expanding free

Starting a decade ago, I’ve charted on Independence Day the most recent long-term projection of the federal debt by the Congressional Budget Office (CBO). Over the years the chart has continued to look much like the Fourth of July fireworks, as you can see here 2010, 2011,  2012, 2013, 2016, 2017, 2018 .
The CBO just released its 2019 Long-Term Budget Otutlook  on June 25, and so it’s time for a July 4th update. The chart of the total deficit on the front cover of the report (reproduced here) is a sight to behold.  As CBO says: “If current laws generally remained unchanged, large budget deficits would boost federal debt to unprecedented levels over the next 30 years.”
What about the debt? I plotted in the next chart the forecast of the debt as share of GDP (solid blue line) along

Last week, after attending monetary policy conferences at Stanford, Chicago and Frankfurt, I put forth evidence in EconomicsOne.com of a revival of research on monetary policy rules for the instruments, whether at the conferences, in research papers, or in Fed publications. I offered possible explanations for the revival, also with evidence, including revealed preference by policymakers, the need to deal with the effective lower bound, disappointments with past departures from rules, threats of legislation, and concerns about political pressure.
This week, Peter Ireland posted an article with a carefully worked-through analysis of recent actual monetary decisions, which takes the idea of the Fed using policy rules for the instruments a significant step further, well beyond research

This summer we will be offering Stanford’s Principles of Economics course online.  As explained in this Wall Street Journal article, “A Twist in Online Learning at Stanford,” the twist again is that we’ll offer it both (1) to the general public and (2) for credit to matriculated Stanford students, incoming freshman, and visiting students in the Stanford Summer School.
Those seeking credit can register here for the for-credit course, which is just starting with the first week’s videos and other course content posted on Monday, June 24. 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. Getting credit requires regular homework, a mid-term exam, and a final exam, all of which are taken

Recently I had the opportunity to participate in several conferences on monetary policy: the annual Hoover monetary policy conference at Stanford in May, the 2019 Fed Review conference in Chicago in June, and the Macro Model Comparison Conference in Frankfurt also in June.  There are many takeaways, but one was very evident.  I will call it a “Revival of Research on Monetary Policy Rules for the Instruments.” Policy rules were the subject of much research in the 1970’s, 1980’s and 1990’s, but in recent years there was a lull.  Now there’s a big pickup. Here are some examples, with the many links found at the conference web pages.
At Stanford, Mertens and Williams (2019) evaluated different interest rules with a new Keynesian model and Cochrane, Taylor and Wieland (2019) evaluated

The most recent book, Currencies, Capital, and Central Bank Balances, in a series on monetary policy has just been published. As the line-up of covers below shows, it is the 5th in a series of volumes emerging from conferences on monetary policy held each spring at the Hoover Institution. The series started during the Federal Reserve Centennial. The conferences at that time did not, in our view, portray a full range of views about policy. So we decided to start a conference series with a bigger range of views, and it has been popular. Next May 3 we will have the 6th conference and a book will likely emerge.

Currencies, Capital and Central Bank Balances focuses on several pressing issues in monetary policy with a tilt toward international issues. One issue concerns the international

During the past few months, John Cochrane and I organized a series of workshops on the 2008 financial crisis. Monika Piazzesi, George Shultz, Niall Ferguson, Caroline Hoxby, and Darrell Duffie joined us in making presentations and, along with other colleagues who attended, turned the series into a vigorous and informative discussion. We defined each workshop by topic: Causes, Panic, Recession, and Lessons, and posted papers or summaries by each presenter as well as full transcripts of each of the four workshops:
Causes: Piazzesi, Taylor, Transcript of workshop
Panic: Shultz, Ferguson, Transcript of workshop
Recession: Hoxby, Taylor, Transcript of workshop
Lessons: Duffie, Cochrane, Transcript of workshop
An enormous amount of research on the crisis during the past ten years is found

Yesterday the Senate Judiciary Committee held an important hearing entitled “Big Bank Bankruptcy: 10 Years After Lehman Brothers.” Originally scheduled for October, but postponed because of the debate over the Kavanaugh confirmation, the hearing concentrated on legislation that would create a new “Chapter 14” of the bankruptcy code under which large financial institutions could go into bankruptcy without spreading the crisis to the rest of the financial system. The idea came out of research by the Resolution Project at Stanford’s Hoover Institution, books such as Bankruptcy Not Bailout: A Special Chapter 14, and many suggestions, including by the witnesses at this hearing.
The hearing was significant because there was so much support expressed in favor of Chapter 14.  Here is a

The IMF/World Bank meetings were held in Bali last week. In addition to the many good beaches there were many good panels including one I was on with Mark Carney and Agustin Carstens. It was organized by the Group of Thirty, led by Jacob Frenkel and Tharman Shanmugaratnam, and focused on “Sustaining an Open and Stable Global Order,” a broad topic, within which I focused on the global monetary and financial system in the following way:
A long-held view of mine—based on solid economic theory and much empirical evidence—is that a global monetary and financial system conducive to a stable global order has three attributes: (1) open capital markets, (2) flexible exchange rates between countries or blocs and (3) a predictable and transparent, or rules-based, monetary policy.
To be sure