Brad looks at John Cochrane asserting that fiscal expansion does nothing but shift money around, and tries to figure out Cochrane’s model. It’s a hopeless quest.
Ever since I got into this fight, I’ve been trying to explain that there isn’t any model there. Eugene Fama, at least, and perhaps Cochrane too, began this debate from a position of complete ignorance — not understanding at all the logic of Keynesian models (even for the purposes of debunking), and imagining that the savings-investment identity necessarily implies 100-per cent crowding out. There was no deeper logic.