The two serious mistakes: The rejection of “leaning against the wind” and the adoption of “overheating” theory

Two economic policy trends stand out as being particularly consequential in OECD countries: The rejection of leaning against the wind, that is the refusal to make monetary policy more restrictive in expansion periods to prevent financial imbalances; The adoption of “overheating” theory, that is demand stimulus even when the economy is close to full employment to try to prolong the expansion period. These two choices have led to a situation where economic policies are no longer ever restrictive, leading both the public debt and the quantity of money to rise continuously. In our view, it was a serious mistake to stop alternating periods of expansionary economic policies with periods of restrictive economic policies.