John Cochrane's WSJ piece is a must read. If Cochrane and Krugman sat down together in a civil setting, here are the questions I would like to ask each of them.
For Krugman;
1. What evidence from applied labor economics convinces you that the long run costs of recession are very high? Isn't unemployment a short run vacation? What research on duration dependence (i.e that being unemployed now reduces your chances of finding a job later) has convinced you that unemployment has huge social costs?
2. Given government's weak track record in efficiently allocating scarce capital, what is your evidence that this time "it will be different" and that our government will efficiently invest in worthy projects (such as Heckman's early age investments initiative) rather than in pork projects and more of the usual?
3. Budgets must eventually be balanced. Do you worry about the deadweight loss and long term economic growth implications that Cochrane suggests are huge? If we sharply raise taxes do we become France and Greece?
For Cochrane:
1. What do growth economists know about the long run determinants of growth?
2. What is the causal relationship between higher taxes and a slowdown in educational investment and a slowdown in innovation?
3. What would entrepreneurs such as Mark Zuckerberg do all day long if they face a 80% marginal rate?
4. Acemoglu's work emphasizes institutions as the main cause of growth. Could higher taxes now help to improve our institutions? Unlike the modern political economics literature, your WSJ doesn't touch on political power and how we rebuild the middle class.
