Just as in complex systems everywhere - this reminds me of the unintended consequences of fire suppression in the national parks - trying to prevent problems from occurring at all makes the eventual conflagration all the greater.
Quote in context - the opening and closing paragraphs of the column:
ECONOMIC policy in the developed world over the past 25 years has followed one overriding principle: the avoidance of recession at all costs. For much of this period monetary policy was the weapon of choice. When markets wobbled, central banks slashed interest rates. A by-product of this policy was a series of debt-financed asset bubbles. When the last of those bubbles burst in 2007 and 2008, the authorities had to add fiscal stimulus and quantitative easing (QE) to the policy mix. The subsequent huge rise in budget deficits was largely the result of a collapse in tax revenues that had been artificially inflated by the debt-financed boom. Britain and America ended up with deficits of more than 10% of GDP, shortfalls that were unprecedented in peacetime.. . .
In a sense, the bill has come due for the past 25 years. A policy of avoiding small recessions has resulted in the biggest downturn since the 1930s. Public finances turned out to be weaker than politicians thought. As a result, they have used up all their ammunition tackling the current crisis. Governments in the rich world will have very few options left if the economy weakens again.A great follow-up via Frank Pasquale: Hyman Minsky said, "stability breeds instability."
