In my view, this is an uncertain proposition. If a problem were unique or isolated, game theory suggests that overwhelming force might serve policymakers’ interests. But, these problems are not isolated. And it is no game. Markets will continue to clamor for more explicit government commitments. Better to feed the proverbial beast with more facts than force.
The Federal Reserve-led stress tests are but one example where the balance was reasonably struck. Fourth, there are no free lunches, but there is an early-bird special for dinner. Economic trends – fiscal, monetary, trade, or regulatory – tend not to improve when the immediate is continually given preference over the important. The economy’s long-term growth prospects must be given top billing.