Todd Suomela
The answer can be summed up in one word: expectations. Once enough people start assuming that the government's response to any economic slowdown will be more government borrowing and spending, they can place financial bets on that assumption. For example, they can bet that the government will ensure that lots of money remains available in the economy, and that they can therefore raise prices accordingly, or demand higher wages. As these bets pile up, they dampen the effect of the intervention they anticipate, forcing the government into an even more extreme intervention to achieve the same result--further heightening expectations for future interventions. Eventually, expectations match the government's maximum feasible effort, and all interventions fail. Only a completely new, unanticipated form of intervention can hope to work.
economics regulation government expectation
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