Free-Lunch Economics
Since the global financial crisis, and particularly during the COVID-19 pandemic, fiscal and monetary policymakers have operated as if there are no tradeoffs to their expansionary policy programs.
Smart economic policymaking invariably requires trading off some pain today for greater future gains. But this is a difficult proposition politically, especially in democracies.
Now that economic conditions have changed, they may soon have to relearn old lessons the hard way.
In late 1996, Fed Chair Alan Greenspan warned of financial markets’ “irrational exuberance.” But the markets shrugged off the warning and were proved correct. Perhaps chastened by the harsh political reaction to Greenspan’s speech, the Fed did nothing. And when the stock market eventually crashed in 2000, the Fed cut rates, ensuring that the recession was mild.
The Fed thus assured traders and bankers that if they collectively gambled on similar assets, it would not limit the upside, but it would limit the downside if their bets turned bad.
... it was the response to the 2008 global financial crisis that broke the previous consensus for more prudent policies.
In addition to the cranks who show up periodically to advocate ostensibly free lunches through money-financed spending (MMT)
All told, an estimated three-quarters of The Paycheck Protection Program (PPP) benefits went to the top one-fifth of earners.
Raghuram G. Rajan Project Syndicate 31 January 2022
https://www.project-syndicate.org/commentary/end-of-free-lunch-economics-by-raghuram-rajan-2022-01
Raghuram Rajan, inflation now “more than transitory.”
https://englundmacro.blogspot.com/2021/11/raghuram-rajan-inflation-now-more-than.html
As we all remember The day of the “irrational exuberance” speech, the Dow Jones industrial average closed at 6,437.10 points
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