A friend recently introduced me to the term “polypharmacy,” which simply means “many drugs.” We’d been discussing the fine health and vigor that his mother still enjoys at the age of 99 when he mentioned his concern about the increasing number of medications she takes regularly. He was especially concerned about the side effects of those drugs, some of which may require supplemental medication to mitigate those side effects, or even a third prescription to deal with the supplemental medication’s side effects.
Our talk got me thinking about governmental policy issues—not about Medicare Part D or controlling the costs of prescription drugs—but the use of current monetary policy to soften the impact of a previously implemented monetary policy which, in turn, may have been introduced to remedy the effects of a policy decision taken at an even earlier time. (By the way, I heard this week’s announcement regarding operation “twist” and further Federal Reserve intervention in the economy while on board a badly delayed flight—I must have jinxed myself last week when I shared with you how lucky I was that both segments of a recent round trip flight to New Orleans were on time.) You know the story: In the wake of the 2000 “tech wreck” and the subsequent recession, the Fed tried to stimulate the economy by reducing interest rates to record low levels and kept them low for an unusually long time. Coupled with a highly accommodative fiscal policy, monetary policy helped the economy to rock, and we all felt flush as security and housing prices soared. By mid-2007, however, the Fed was telling us that inflation had become a greater concern and tightened the money supply. The tighter policy—as it was intended to do—restricted access to easy credit and as a result (to somewhat oversimplify), the housing bubble popped. In the fall of 2007, the Fed and its fellow central banks responded by reversing course once again. Although it has now been four years since the Fed initiated both conventional and unconventional remedies to address “the great recession,” the Fed admits that the economy still faces “significant downside risks.”
Our problem with the Fed is like a problem with modern medicine: we expect them to “do something” when we or the economy feels ill. This week’s Fed action leads me to paraphrase Grace Slick, “The pills that the Federal Reserve gives you don’t do anything at all.”