Soft Landing – Definition

Cite this article as:"Soft Landing – Definition," in The Business Professor, updated April 24, 2019, last accessed October 28, 2020, https://thebusinessprofessor.com/lesson/soft-landing-definition/.

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Soft Landing Definition

Avoiding a cyclical economic crash like recession while maintaining a semblance of stability and growth even under difficult economic circumstances is called a ‘Soft Landing’. Keeping inflation and unemployment in check while taking measures to stimulate growth can save an economy from a hard downturn and cushion its nosedive to a ‘Soft Landing’. The term can also be applied to specific industry verticals that are on the decline but avoid total burnout.

A Little More on What is a Soft Landing

Former Chairman of the United States Federal Reserve, Alan Greenspan, conceived of the concept and also crafted its execution in 1994 – 1995, by increasing interest rates without sending the economy into a tailspin.

A hard landing could spiral out of control with unemployment reaching peak numbers while growth remains stagnant. Usually, central banks and governments work in tandem to fine tune monetary policies and procedures to avoid a crash landing when a downturn is imminent. These measures aren’t always as successful for real as they are on paper and cause unseen problems down the line like the asset bubble in the housing sector in 2001 which was blamed on the heavy rate cuts preceding it.

Historically, most economic bubbles are caused by micro policies that fail to take in the 360 degree picture or correctly forecast the negative repercussions of such policies. These bubbles aren’t followed by Soft Landings in the real world scenario. Conservative economists go so far as to dismiss ‘Soft Landings’ as economic mumbo jumbo not worthy of literature reviews.

A Soft Landing is being engineered for the US economy since 2018 to increase employment even as interest rates are being raised to arrest inflation. Economists fear this is going to end badly with wage-price spirals, forcing excessive interest rates increase leading to a recession like state.

References for Soft Landing

Academic Research on Soft Landing

Stocks, flows and complementarity: formalizing a basic insight of ecological economics, Kraev, E. (2002). Ecological Economics, 43(2-3), 277-286. This paper sheds light on the flow of economic resources in light of ecology and their impact on economic capital.

End of the expansion: Soft landing, hard landing, or even crash?, Palley, T. (1999). Challenge, 42(6), 6-25.

What kind of landing for the Chinese economy?, Lardy, N., & Goldstein, M. (2004). This paper presents a case on the Chinese economy and speculates on what kind of landing it is headed for.

Soft landing of a Stock Market Bubble. An experimental Study, Becker, R., Fischbacher, U., & Hens, T. (2002). This is an experimental study that aims to investigate the post economic bubble ‘Soft Landing’.

Soft lending and hard landing: Related lending in Mexico, La Porta, R., Lopez-de-Silanes, F., & Zamarripa, G. (2000). Harvard University, Department of Economics, Cambridge, Mass. This paper studies the Mexican lending markets to examine the relationship between a Hard Landing and soft lending.

“Flying High, Landing Soft” An innovative entrepreneurial curriculum for Chinese SMEs going abroad, Chen, Y. S., Watson, E., Cornacchione, E., & Ferreira Leitão Azevedo, R. (2013). Journal of Chinese Entrepreneurship, 5(2), 122-143. This paper studies high flying SMEs in China and the entrepreneurial curriculum making the case for Soft Landings.

Executive compensation at Fannie Mae: A case study of perverse incentives, nonperformance pay, and camouflage, Bebchuk, L. A., & Fried, J. M. (2004). J. Corp. L., 30, 807. This paper is a case study on the U.S. Fannie Mae mortgages.

On the Effect of the Transmission Mechanism of Monetary Policy in China [J], Zhaohui, S. (2006). Journal of Financial Research, 7(003). This paper sheds light on the Monetary Policies in China and their effect on the financial markets.

Towards a better understanding of metaphorical networks in the language of economics: The importance of theory-constitutive metaphors, Resche, C. (2012). Metaphor and mills: Figurative language in business and economics, 19, 77. This chapter explores the metaphors in use in economic parlance.

The economic black hole, Thurow, L. C., & Tyson, L. D. A. (1987). Foreign Policy, 3-21. This paper focuses on the rising U.S. debts and equates this scenario to a black hole.

Softlanding Monetary Policy, Composite Leading Economic Indicators, and Predicting the 2001 Recession, Mostaghimi, M. (2002). This paper does a deep dive on the economic recession of 2001 and examines the various economic indicators preceding the crash, while also shedding light on the monetary policies aimed at creating a Soft Landing.

China’s Experience of Demand Management [J], Chaoyu, Z. H. E. N. G. (2009). Journal of Financial Research, 4, 004. This article explains the Chinese expansion scenario since 2003 and the macroeconomic factors at play.

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