This one on Tyler Cowen’s confused/confusing post about QE exit:

Anyone confused about the effects of the taper has more than likely befuddled themselves out of the ability to see things clearly.

Unemployment is very high, labor force participation is low, and inflation is low. These problems tend to be solved by more money unless there is some supply-side constraint, especially in the energy sector, that would cause further monetary stimulus to be purely inflationary.

This is also a case where “use of wrong metaphor” is a pandemic memetic illness that is terminally crippling our ability to have this conversation. In recent years monetary stimulus has usually been phrased as the consumption of some short-term-pleasing but long-term-unhealthy substance to which the economic body begins building a tolerance, such as “sugar” or “heroin;” the latter especially harmonizes with the terminology prevalent in these discussions (“injection,” “withdrawal”). Yet this is, in fact, a poor metaphor for monetary policy except in narrow circumstances distant from those we currently occupy.

The correct metaphor for monetary policy is the steam engine of a locomotive. There is a correct amount of fuel to add to the engine; too much and it overheats, too little and it sputters and remains in place. The question to be asking is always “are we above or below the optimal point?” The current question – “how do we exit QE?” – is leading us down a very ominous path. Why do we inherently want to exit QE? Because hopefully it would signal economic recovery. But that does not mean exiting QE can cause recovery.

Now, monetary policy is of course more complex than a steam engine; the better metaphor is one that imagines a self-aware steam engine that can anticipate how much fuel it will likely receive in the future and can therefore reserve some portion of current fuel for future rather than present consumption. If we see the engine reserving substantial portions of fuel even as it is going slower than we’d like, that is not an engine that is on the path to regain the momentum to which we aspire.

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