The Failure of Economic Policy

A number caught our eye this morning. Jon Marksman wrote that according to a tally by ISI Group, there have been 158 stimulative policy initiatives announced around the world in the past nine months — and a lot of good they have done. This crystallized a notion that has been appearing as off-hand commentary for several months: economic policy initiatives, which have been compared to economic heroin, are losing their effectiveness. Successive stimuli have to be larger to produce a shorter and smaller impact.

This suggests that economic policy is approaching a zero bound where it will be completely ineffectual in a positive sense but potentially catastrophic in a negative sense in terms of its collapse. To prove this statement would require a lot of research into the various policy initiatives and their effects. We will begin to track such but leave it to others to back-test the hypothesis.

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