However, while the provision of safety nets and the implementation of countercyclical policies are desirable and effective measures when the economy suffers a large temporary shock, if those measures go too far, they may impede the economic metabolism and even reduce productivity. For that reason, policy makers need to strike a delicate balance in their policy conduct.
On this point, there have been various discussions regarding the current events in Europe. Since the Lehman shock, aggressive fiscal policies implemented in many countries played a significant role in stemming the economic plunge. However, at the same time, fiscal policies are not a “cornucopia” and eventually nations have to repay their public debt through the value added generated by economic activity.