Shocks, Crises, and False Alarms

CHAPTER 9 The Compulsive Stimulus Machine

Risks of systemic macroeconomic collapse can never, unfortunately, be ruled out. Twice in fewer than 20 years, the US economy came relatively close to the macroeconomic precipice, opening the possibility of an economic depression akin to that of the 1930s. But the awesome power of existential stimulus prevented that from happening, both in the global financial crisis of 2008 and in the pandemic of 2020.

Stimulus is also deployed outside of such crises. In fact, it is used constantly. When recession looms, or recoveries are sluggish, tactical stimulus is pursued. Central bankers cut interest rates, and fiscal authorities lean into deficit spending to de-risk the cycle. What’s more, stimulus is even ...