John Cochrane is blogging, something I take complete credit for
since I introduced Cochrane’s ideas to HTML here. He writes in a
lengthy internally dependent style reminiscent of my own.
Nonetheless I will try to excerpt the key points We all agree
that "Ricardian Equivalence" is how the economy would and should
work, if there were no "frictions," or other problems. I am not
so sure about that. From what comes later it is clear that
Cochrane means something different by Ricardian Equivalence than
I do. When I use the term Ricardian Equivalence I mean that when
the government borrows money the fact that future taxes will
have to rise induces folks in the economy to save more money.
What’s absolutely key here – and I will show later – is that
this means that ceteris paribus interest rates do not rise from
an increase in government borrowing. This claim I believe is
false and I think many other people do as well. Now, I’ll try to
quote enough to show Cochrane’s meaning of the term. So
according to Paul, the pred