John Cochrane Endorses Fiscal Stimulus As Long As You Don’t Call It “Fiscal Stimulus”

Much of the economics blogosphere has been tied in knots over the past several weeks engaged in a controversy regarding John Cochrane’s opposition to fiscal stimulus. Today it emerges that John Cochrane doesn’t actually oppose fiscal stimulus under ordinary definitions of the term:

Let’s be clear what the “fiscal stimulus” argument is and is not about. 

It is not about the proposition that governments should run deficits in recessions. They should, for simple tax-smoothing, consumption-smoothing, and social-insurance reasons, just as governments should finance wars with debt. That doesn’t justify all deficits – one can still argue that our government used the recession to radically increase permanent spending. But disliking “stimulus” is not the same thing as calling for an annually balanced budget. 


Nor is it about debt financing of “infrastructure” or other genuine investments. If the project is valuable, do it. And recessions, with low interest rates and available workers, are good times to do it.

Noah Smith who likes a good fight wants to continue the argument, but I think it’s sometimes better to just declare victory and go home. John Cochrane agrees that you should run a deficit during a recession and also agrees that ideally you’d time government infrastructure spending to occur disproprortionately during recessions. That is good enough for me! “Stimulus” is a strange word and I’m happy to agree not to use it anymore, since to the best of my knowledge the “fiscal stimulus debate” was about exactly the things Cochrane says it isn’t about.