But Ricardian equivalence simply means that tax cuts aren’t stimulative, which many on the right prefer to spending. This means that according to the predictions of Ricardian equivalence, the stimulus package should have been weighted more heavily towards spending and less towards tax cuts.

De Long has already addressed this back in March:
http://tinyurl.com/ylrosk3

To which I say, paraphrasing Keynes, that those ideal conditions (described in the Barro article) represent the specific case, not the general case, and certainly not the conditions of the economic society which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

For example, Barro assumes that poor people can borrow as much as they want. (Actually, there are no poor people in his model…)

Cochrane’s argument was that “Every dollar of increased government spending must correspond to one less dollar of private spending.” b/c of an accounting identity which always holds. That’s a logical fallacy. Cochrane did not say “under certain ideal conditions”. You did not answer the question.

Cochrane’s article is actually worse than this. For although he does say that the assumptions of Barro’s theorem may not hold, he then says: “when you take this into account we are all made poorer by deficit spending, so the multiplier is most likely negative.”

Do you believe the multiplier is negative, even in a deep recession, when excess reserves are piling up like pancakes, short-term interest rates are near zero and factories are sitting idle.

Cochrane then proceeds: “Nobody ever “asserted that an increase in government spending cannot, under any circumstances, increase employment.” ”

But this is also false, yes, because John Cochrane had apparently forgotten what John Cochrane himself had just written: “Every dollar of increased government spending must correspond to one less dollar of private spending.”

So, again, I’m asking you if you believe John Cochrane when he wrote: “Every dollar of increased government spending must correspond to one less dollar of private spending.”

My second question is if you believe John Cochrane when he wrote: “the multiplier is most likely negative”.

After all, you linked to Cochrane approvingly. These two arguments of Cochrane (echoed by Fama, Zingales, Prescott, etc.) are what the whole debate was about.

“The multiplier is most likely negative” of course, is 10X crazier than saying it’s zero.

Where does Steven Landsburg stand?

Which is it?

I’ll give the mike to John Cochrane, and let him say what he believes:

“Most fiscal stimulus arguments are based on fallacies, because they ignore three basic facts.

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both1 . This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions. ”

That is the Treasury View. John Cochrane wrote that, presumably because he believes it. You say you back John Cochrane. Krugman and DeLong attacked John Cochrane for re-inventing the Treasury View. Now is your time, defend the Treasury view. I.e., tell your readers why you believe, in Cochrane’s words, that: “Every dollar of increased government spending must correspond to one less dollar of private spending.”

If you believe this is Cochrane’s view, then you cannot possibly have read the piece I linked to (see the section headed “Stimulus”). I suggest that you read it.

Krugman was taking the view of John Maynard Keynes arguing against the Treasury…

Can you explain in your blog why you believe the Treasury View is correct?

After all, the British Treasury eventually conceded to Keynes, but here Cochrane is 70 years later…

The only reason I even bring it up is that when Krugman forgets his economics it is perfect that he is no longer a professor but merely a “Mr.”

George Soros is more of a speculator about markets and their timing than Buffett, and I think he’d be more interesting to examine if you want to challenge your confidence in EMH.