- The 2010s were a time of unlearning old macroeconomic lessons, with the housing crash, financial crisis and Great Recession turning much of the conventional macro wisdom on its head.
- The 2020s, however, have seen a return to more orthodox macroeconomic ideas, with the events of the past two years suggesting that the heterodox “lessons” of the 2010s were incorrect.
- Examples include the idea that market crashes do not always cause recessions, that asset prices do not always affect the real economy, and that quantitative easing and the zero interest rate policy (QE and ZIRP) may not cause inflation.
- The 2010s taught us to be wary of bubbles and the potential for banking crises, and the 2020s have shown us the importance of fiscal and monetary policy in managing aggregate demand.
- The financial crisis of 2008-09 showed the importance of government backstops in the mortgage market and the dangers of excessive debt.
- The 2020s have demonstrated that government borrowing can cause interest rates to rise, and that easy money can lead to inflation if aggregate demand is high.
- Ultimately, basic Keynesian macroeconomic intuition still stands in the 2020s, just as it did in the 2010s.
Click HERE for original. Published December 22, 2022
