obama_driving.jpg

To restore some karmic balance, I will now heartily second and expand on this idea from Matt Yglesias:

A different way of thinking about [the relationship between the monetary and fiscal actors] would be a sailboat. The central bank is blowing the wind, and the parliament has its hand on the steering wheel. The wind strength determines, in nominal terms, how far the ship goes. The steering determines whether that nominal distance gets you closer to where you’re trying to go in terms of living standards. As long as some wind is blowing, it’s true that better steering will shorten your trip. And it’s certainly true that harder wind isn’t going to compensate for the ship pointing in the wrong direction. But at the same time, even a really well-steered ship isn’t going to go anywhere without wind in its sails. If you’re becalmed, you’re becalmed and getting lectures about how your previous navigation was less than ideal doesn’t change anything. It’s true that you can always hope the ocean currents push you in a favorable direction, and that it would be advisable to have the rudder in the right position to take advantage of good luck, but fundamentally you need wind. By the same token, if the ship’s going in the wrong direction what you really need is to turn the ship around, not less wind. At the same time, if the wind goes too strong, you could dangerously overburden your navigators.

This is an extremely useful metaphor, one that I think is actually more generalizeable than in this specifically nautical form. In another excellent piece about how to use metaphor to better understand economics, Paul Rosenberg insists that the economy is better understood not in medical terms but in mechanical terms. Merging these two, I think it’s pretty clear that it makes a lot of sense to view the economy as a mechanical device (as Keynes famously did) and to view the role of money in this as an energy input. Say the economy is a car, or maybe a factory. If it’s designed well and is well-fueled it’s going to go places or make a lot of stuff. If it’s poorly-designed or broken it will underperform or fail regardless of the energy input. But if it has no energy or fuel it doesn’t matter how it’s designed; in fact, quality of design is impossible to discern. On the other hand, even a perfectly designed machine can overheat if over-fueled or pushed too hard.

Advertisements