On August 16, 2024, David Lin interviewed John Cochrane, a renowned economist and Senior Fellow at Stanford University’s Hoover Institution. Cochrane discussed a wide range of economic topics, including inflation, fiscal policy, and the prospects of hyperinflation.

The Myth of Price Gouging and Inflation

Cochrane began by addressing recent political rhetoric around price gouging, particularly in the context of inflation. He criticized the idea that price gouging by corporations is a significant cause of inflation, labeling it as economic nonsense. According to Cochrane, inflation is fundamentally a monetary phenomenon—a result of too much money being printed and distributed rather than the actions of greedy corporations. He pointed out that the idea of corporations suddenly becoming more greedy in 2021, leading to inflation, is absurd. He emphasized that grocery stores, which operate on thin margins, are unlikely culprits in the inflation saga.

The Ineffectiveness of Price Controls

Cochrane also discussed the potential pitfalls of price controls, an idea that some politicians have floated as a solution to rising costs. He argued that while price controls might temporarily suppress inflation on paper, they do not address the underlying issues and often lead to other economic problems, such as shortages and reduced quality. He warned that price controls could destroy markets and lead to more significant economic issues down the line.

Inflation: A Product of Fiscal and Monetary Policy

When asked about the ideal inflation rate, Cochrane advocated for zero inflation, challenging the common notion that a 2% inflation rate is beneficial. He argued that the Federal Reserve’s mandate of price stability should mean maintaining a stable price level rather than allowing a steady erosion of the dollar’s value. Cochrane asserted that the recent inflationary surge was not merely a result of Federal Reserve policies but also a consequence of expansive fiscal policy, where large amounts of money were borrowed and spent, fueling demand and driving up prices.

The Fragility of the Current Economic State


Cochrane expressed concern about the fragility of the current economic situation, likening it to the late 1970s when inflation surged unexpectedly. He warned that any future recession or global emergency could trigger another wave of inflation, particularly if the government responds with additional borrowing and spending. He highlighted the need for sound fiscal and monetary policies to maintain confidence in the U.S. government’s stability, without which inflation could spiral out of control.

The Debate on the Gold Standard

Addressing the calls from some quarters to return to the gold standard, Cochrane dismissed the idea as impractical for the modern economy. While acknowledging that the gold standard historically helped control inflation by limiting the government’s ability to print money, he pointed out its flaws, including the volatility of gold prices and the deflationary pressures it can create. He argued that the gold standard is incompatible with a modern economy that no longer uses gold coins as a medium of exchange.

Hyperinflation: A Real Threat?

Cochrane tackled the topic of hyperinflation, a fear that has gained traction due to the U.S.’s rising debt levels and persistent deficits. While he hoped that hyperinflation would be unlikely, he warned that the U.S. would not be immune to the forces that have caused hyperinflation in other countries, like Argentina. He stressed that hyperinflation is ultimately a fiscal issue, arising when governments print money to cover unsustainable deficits. Cochrane called for serious fiscal reforms to avoid such a scenario.

The Role of the Federal Reserve and Recessions

In his closing remarks, Cochrane reflected on the causes of recessions, echoing Janet Yellen’s assertion that financial imbalances and Federal Reserve policies are the primary drivers of economic cycles. He pointed out that while an external shock caused the COVID-19 recession, most U.S. recessions since World War II have been linked to Federal Reserve actions, either through mistakes or deliberate tightening of monetary policy. Cochrane emphasized the importance of a more rules-oriented approach to monetary policy to prevent the Fed from overreacting and inadvertently causing recessions.

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