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Why has unprecedented monetary and fiscal stimulus not produced the desired results? Partly because it is being asked to do something it is incapable of: boosting growth over the long term. Some analysts go further, arguing that the very policies designed to boost growth in the short term subtract from it in the long term. Stimulus partly works by shifting demand from the future to the present via more borrowing and risk-taking, which clearly dampens spending in the future. At a deeper level, emergency levels of monetary and fiscal stimulus were never intended to be sustained for a long period because of the distortions they introduce into a wide range of decisions about saving, investing and borrowing that lower long-term potential growth. As the Bank for International Settlements stressed in its 2016 annual report, “tomorrow eventually becomes today.” We are living in the future we distorted and borrowed from to avoid a worse recession several years ago.

The long term is more than the sum of a series of short terms. In the words of Yale University’s Robert Shiller (who won a Nobel prize for spotting both the stock market and housing bubbles in the U.S.), “We must therefore consider the short run and the long run separately, and the policy responses to the two are very different.” Long-term growth policies encourage a better allocation of resources and enhanced technological change. Easy monetary policies instead divert resources to low-productivity sectors that benefit from low interest rates, notably housing and government; allow inefficient firms to survive; weaken financial institutions; and encourage risky behaviours with low payoffs.