Housing has become unaffordable for those on average incomes. Photo / Doug Sherring
EDITORIAL:
An article we published from the Financial Times yesterday made a compelling argument that economic stimulus is, and should be, a permanent policy for governments to follow. The stimulants it referred to are the previously unorthodox monetary injections given by central banks of the United States and Europe after
the global financial crisis of 2008.
Twelve years is a long time in economic terms, longer than the usual business cycle. In that time the US has managed to stop creating money by buying its own bonds, called "quantitative easing", but European banks have tried and failed to wean their economies from the teat.
Theory warns that monetary creation will cause inflation if the production of goods and services does not grow at the same rate. But after a dozen years of this stimulus, growth in most economies remains low, and yet inflation has not reappeared.
The Financial Times' commentator, Martin Sandbu, argues there is a lesson to be learned on the bright side of this experience. "First, demand stimulus works," he wrote. "[It] has kept growth on track well beyond the length of typical economic recoveries, and more stimulus has tended to go with more growth. This has pushed unemployment down and created more jobs than observers thought was safely possible. The 'Phillips curve' that warns of inflation rising when labour markets become too tight, has been quiescent.