Oh boy. John Cochrane does not know something that David Hume did--that the velocity of monetary circulation is an economic variable rather than a technological constant.Now let us put our thinking cap on here.
Let us take this slowly.
Suppose that we have four agents: Alice, Beverly, Carol, and Deborah.
Suppose that Beverly has $500 in cash that she owes Carol, due in two months. Suppose that Alice and Carol are both unemployed and idle.
In one scenario in two months Beverly goes to Carol and pays her the $500. End of story.
In a second scenario Beverly says to Alice: "I have a house. Why don't you build a deck--I will pay you $500 after the work is done. Here is the contract." Alice takes the contract and goes to Carol. She shows the contract to Carol and says: "See. I will be good for the debt. Cook me meals so I will have the strength to build the deck--here's another contract in which I promise to pay you $500 within 90 days if you cook for me." Carol agrees.
A deck has gotten built. Meals have been cooked and eaten. Two women have been employed. And all this has happened without printing any extra money.
John Cochrane would say that this is impossible.
John Cochrane is wrong.
Cochrane's mistake--an elementary, freshman mistake--is because he has not thought enough about how a credit economy works to recognize that the velocity of circulation can be an economic variable and is not necessarily a technological constant. And as the velocity of circulation varies, the amount of the flow of spending varies as well: it is now longer the case that if Beverly borrows a dollar from Carol that is a dollar that Carol does not spend.
[ cf Time to Bang My Head Against the Wall Some More (Pre-Elementary Monetary Economics Department) ]
Did YOU notice that not once did this EVIL LIBERAL fail to mention how Dubya adds the Divinity to Life? NOR did he point out that these women should be married and under the headship and submission of their husbands, so that they are not lead astray into GODLESS UNBELIEF!!!
And not one mention is made about how the Unborn Baby UBU lifts up the Imaginary Invisible Foot of the Market to keep us Free from Gay HomoZeXual Marriage Agendanista...
Thus Evil Liberals ARE BAD.
Are you doing YOUR PART to stop them?