Unlike in 2008, governments will lack the policy tools to manage the next downturn around 2020.

Judged as of end-2020, in the downturn around 2020. True: a downturn occurred, and governments and central banks were unable to mount a meaningful fiscal or monetary response because of constraints such as zero rates, debt limits or political gridlock, so their policy responses were absent or clearly smaller than in 2008. Mostly true: a downturn occurred and responses were significantly constrained in most major economies, with a minor exception. Mixed: some major economies lacked usable tools while others deployed large responses. Mostly false: constraints existed (for example rates already near zero), but governments still deployed fiscal and monetary measures that were large by 2008 standards. False: the major economies deployed fiscal stimulus and monetary easing as large as or larger than in 2008–09, or there was no downturn to manage.

Set before the research began.

1. E1 The Fiscal Response to COVID-19 Will be Larger than the Great Recession Response | Committee for a Responsible Federal Budget Committee for a Responsible Federal Budget · 21 December 2020

   “COVID-related fiscal support totaled more than 13 percent of GDP in 2020. We estimate it will total 3 percent of GDP in 2021 – mostly due to the Response & Relief Act – and have little net impact starting in 2022.”

2. E2 The COVID-19 Fiscal Multiplier: Lessons from the Great Recession - San Francisco Fed Federal Reserve Bank of San Francisco · 26 May 2020

   “Thus, the discretionary stimulus during the Great Recession was about 7.5% of GDP, somewhat smaller than the COVID-19 response to date, at 11.2% of GDP.”

3. E3 The COVID-19 Fiscal Multiplier: Lessons from the Great Recession - San Francisco Fed Federal Reserve Bank of San Francisco · 26 May 2020

   “Other important similarities are that both came during severe economic downturns and when the federal funds rate was near its zero lower bound (ZLB), which limits the ability of monetary policy to stimulate the economy.”

A severe downturn did occur around 2020. E3 confirms that policy rates were near the zero lower bound, which limited monetary policy, so part of the predicted constraint was real. Still, the US fiscal response was larger than in 2008: E2 puts COVID stimulus at 11.2% of GDP by May 2020 against about 7.5% in the Great Recession, and E1 reports more than 13% of GDP in 2020. The evidence covers only the United States, not other major economies or the size of monetary easing, so the result is mostly false rather than false.