The argument that fiscal and monetary stimulus is guaranteed to stave off a recession at some adequate quantity, has made me start thinking about other similarly infinitely open-minded beliefs. For instance, the claim that if one were to jump hard enough, one could get 100 feet in the air. How does one disprove such a belief? The reason it is difficult is because the proponent can simply say "well if you aren't reaching 100 feet, then you aren't jumping hard enough which is the requirement."
In the financial realm right now we hear that if the current quantity of fiscal and monetary stimulus is not turning the economy around, it means that we need more. But does there come a point when we can say that fiscal and monetary stimulus, no matter how large, does not in fact turn an economy around?
We know that during Japan's lost decade its government made it the most indebted nation in the world. In addition, its monetary authorities pumped incalculable quantities of money into their economy but that did not work either. In the United States right now the government has already passed the largest stimulus plan in history and the Federal Reserve has pumped trillions of dollars into the banks. But we have not yet recovered.
When will it be safe to say that there is something fundamentally flawed about the theory of fiscal and monetary stimulus being able to turn around an economy? Is it possible that in the past, in less severe economic situations, it only appeared that the fiscal and monetary stimulus turned the economy around when in actuality it was something else?