TILBURG, Netherlands — There are times to think outside the box, and there are times to return to normality. The West's major central banks — the Bank of England, the European Central Bank, and the U.S. Federal Reserve — should take this to heart.
As former Fed Chairman William McChesney Martin put it: "It's the task of the central bank to take the punch bowl away when the party is still going." Recently, however, the Fed decided not only to keep the punch bowl in place, but to refill it.
When the financial crisis erupted with full force in 2008, the world's major central banks were right to employ exceptional measures. Granted, one could argue that in some cases they overshot — for example, with the second round of so-called quantitative easing in the United States — but, roughly speaking, the response seems to have been appropriate.