For economists who study the boom-bust cycle, this period is just as unsettling as any we have faced since the 1970s, and maybe even the Great Depression. The problem is that none of the policy remedies proposed by economic theory for the Great Recession are clearly successful. The $9 trillion in deficit spending and the nearly decade-long period of zero interest rates have failed to plump up the US economy. The story is worse elsewhere, and is fueling a very active period of research. Here are some thoughts on potential failures of fiscal and monetary policy.

First, the theoretical explanation for fiscal policy (tax cuts and excess spending) is that they’ll stimulate additional demand for goods and services. The problem is that in this business cycle these expensive efforts are terribly disappointing. I think one potential cause is in the composition of government spending.

In the heyday of fiscal policy, from the 1930s to the 1970s, government spending mostly went towards such things as infrastructure, new military hardware and equipment and other tangible items. The 2009 stimulus bill spent less than 10 percent of its total on infrastructure. The remainder of the stimulus and much of the $9 trillion in additional debt were spent on programs not designed to increase the labor supply or demand. Indeed, the stimulus and the large spike in spending since 2009 differed from the New Deal in that they mostly incentivized people to remain idle and avoid work. That might explain why its results differed so dramatically from those of the New Deal.

Monetary policy has also been a frustration. A decade of near-zero interest rates have not resulted in a large increase in real investment in housing and business equipment. There are several reasons why this may be so. Perhaps the continuing failure of fiscal policy has rendered unprofitable new business borrowing. But, it could also be a fundamental problem with the way banks make loans.

Investment risk is typically viewed as the variance around an expected rate of return. So, for example, an 8.0 percent loan portfolio may have an expected plus or minus 2.0 percent variance. But, as rates drop, so too do acceptable variances. A 1.0 percent loan with a plus or minus 2.0 percent variance is hugely risky. No bank would loan under those conditions, yet the low interest rates produced by the Fed do little to reduce the risk of small businesses failing and defaulting on their loans.

A consequence of this is that banks are now terribly reluctant to accept the same risk on a near-zero interest rate loan they might have at a higher rate. But, instead of increasing the rate, they simply loan based upon perceived risk. This cuts out many new small businesses that would’ve had access to capital before the days of zero interest rates.

As time passes, these two hypotheses will be tested against the evidence, as will many other ideas. One thing is certain, this focus on the microeconomics of policy will be a stark improvement on business cycle research.