I keep reading about this concept in the news. From what I understand it means stimulating the economy even when it growing. Is that right? What’s the benefit?
In: Economics
So there are two ways to prop up an economy, broadly speaking:
1. Monetary Policy
2. Fiscal Policy
Look these up.
Expansionary fiscal policy is gubment spending money.
Expansionary monetary policy is central bank “printing” money. (Actually open market operations. Again, just look that up on investopedia)
Expansionary monetary or fiscal policy is classically done when the economy is slowing, in order to prop it back up.
There is a degree to which expansionary policies today makes your expansionary policies in the future less effective. So the general idea is you do the expansionary policies when the economy is shitty, then when it’s good you stop with your expansionary policies so that they can kind of regain their powers.
Thing is, expansionary policies are super bomb in the short run. So if a gubment does a ton of expansionary policies they’ll look like they’re super successful for the economy, even if they kind of leave us with our pants down for the next recession.
That’s kind of the gist of it. So “running the economy hot” means going with expansionary fiscal and monetary policy when the economy is already doing well. That’s exactly what Trump did in the US during his 4 years. You can basically coke up the economy.
Then any future gubment that stops the coking up will be the one who suffers through the hangover. Thus, you can basically expect expansionary fiscal and monetary policy until they’ve completely overloaded the pumps and are fresh-outa-bumps.
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