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Never The Same

“Liquidate labor, liquidate stocks, liquidate real estate. Purge the rottenness out of the system.” – Treasury Secretary Andrew Mellon, 1930

“We have a lot of money. We need to get that money in Americans’ hands.” – Treasury Secretary Steve Mnuchin, 2020

Things are different now.

They started to change in 2008, when Congress and the Federal Reserve threw unprecedented money at the economy to keep it from collapsing.

They’ve done it again this year with even more money. Trillions and trillions of dollars. It was a huge debate in 2008. It’s much less controversial today.

My theory is that once a new kind of stimulus is tasted it becomes a permanent feature of how downturns are handled.

This isn’t about the technical details of stimulus.

It’s not even about whether you think it works.

It’s about the perceptions of struggling people who demand something be done, and their knowledge of what can be done.

People might give policymakers a pass if there’s a problem with no known solution. But if there’s a known solution and policymakers choose not to use it, they look like the problem. And they know it.

Let me tell a short story about Harry Truman to show you what I mean.


Hours after dropping a nuclear bomb on Hiroshima, Harry Truman told the world: “Having found the bomb we have used it.”

What he seems to have meant was: there was no debate about whether we should have used this bomb. Once we had it, not using it was inconceivable.

George Elsey, a Truman advisor, later said, “Truman made no decision because there was no decision to be made.” There was no serious discussion about not using it.

The inevitability of using the bomb had as much to do with politics as military strategy. Americans were exhausted from war in 1945 – from the death abroad to the rationing at home – and would have been furious if they learned a weapon that could have ended it wasn’t used. Historian David McCullough wrote:

Truman would have been impeached if it were found out later that he had sent any American soldiers to their deaths knowing he had a weapon that could have ended the war sooner.

That was it.

If people desperately want you to do something and you choose to not do something that could have helped … well, good luck to you.

The stakes are lower, but that same idea might apply to how Congress and the Fed think about stimulus during future economic downturns.


More than 20 million Americans lost their jobs in April. But incomes rose a record amount, and poverty fell.

The halt in business has been stronger than anything ever seen, including the Great Depression. But the Nasdaq is at an all-time high.

The story isn’t over. And it’s political, so it’s messy. But in terms of quickly stemming an economic wound, the policy response over the last 90 days has been a success.

There’s been the $600 weekly boost to unemployment benefits.

The Fed expanding its balance sheet by trillions of dollars and backstopping corporate debt markets.

The $1,200 stimulus payments.

The Paycheck Protection Plan.

The airline bailouts.

The foreclosure moratoriums … on and on.

I don’t care whether you think those things are right, wrong, moral, or will have ugly consequences. That’s a different topic.

All that matters here is that people’s perception of what policymakers are capable of doing when the economy declines has been shifted higher in a huge way. And it’s crazy to think those new expectations won’t impact policymakers’ future decisions.

It’s one thing if people think policymakers don’t have the tools to fight a recession. But now that everyone knows how powerful the tools can be, no politician can say, “There’s nothing we could do.” They can only say, “We chose not to do it.” Which few politicians – on either side – wants to say when people are losing jobs.

I think the $600 a week unemployment benefit boost will stick. If it expires it’ll likely return, maybe in a different form. Anything less – going back to what was “normal” 90 days ago – will feel inadequate to unemployment workers who now know what the federal government is capable of doing.

I think the Federal Reserve will keep flooding the market with liquidity when it declines. When former chairman Ben Bernanke did it in 2008 it looked reckless. When it worked, it became the baseline assumption of what current chairman Jay Powell could do this year. Now that we know it’s possible, any future Fed leader who doesn’t do it will look reckless.

I don’t know exactly what that means for the future of the economy.

It probably doesn’t mean we’ll avoid future downturns. It might make them deeper, as bankers and investors who (rightly) know there’s a safety net take more risk. Calm plants the seeds of crazy.

But maybe it means those sharp, hard, downturns will be shorter-lived than before. That’s been the case this year, as the speed of the rebound has taken nearly everyone off guard.

Maybe just knowing the safety net is there fundamentally changes the way the economy works. No one’s used a nuclear bomb on an enemy since 1945, but knowing they exist changed geopolitics ever since.

Whatever the changes are, it seems crazy to deny that things changed.

People can’t unlearn what they’ve learned is possible, and everyone’s knowledge of what’s possible grew this year.


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