Tuesday, December 13, 2011

The "tinkering" metaphor

     FDR was popular during the Great Depression partly due to his willingness to experiment with different solutions to the economic crisis.  He tried everything, as David Kennedy remarks...


What unit of plan or purpose, one might ask, was to be found in an administration that at various times tinkered with inflation and price controls, with deficit spending and budget-balancing, cartelization and trust-busing, the promotion of consumption and the intimidation of investment, farm-acreage reduction and land reclamation, public employment projects and forced removals from the labor pool?

—David M. Kennedy describing Franklin D. Roosevelt’s New Deal in Freedom From Fear

     The idea of using government to create different experimental interventions into the economy makes a lot of sense with certain metaphors of the economy.  If your metaphor for the economy is a gasoline engine, a broken economy is like a broken engine, and it makes sense to keep replacing different parts until the engine works again.
     Is a gasoline engine a good metaphor?  Yes, if you allow the possibility that replacing one working part with another part can cause damage elsewhere in the engine.  Like, spending money on a new alternator degrades from the performance of the fuel injection.  You would also have to assume that the engine, given time (and it may take a long time), will fix itself.  
     Any money the government spends must be taken from somewhere.  Even if the money is printed, money is essentially taken from the economy in the form of a devalued currency.  Consequently, you only replace the alternator if you have reasonable assurance the alternator was the problem, or if you believe the cost of replacing a working alternator in the form of a less efficient fuel injection is something you can live with.  Likewise, you do not want to risk the damage to the fuel injection unless you believe it will take the economy a long time to fix itself.
     This is why a better metaphor for a troubled economy is a sick person.  Chemotherapy might help a cancer patient, but will hurt the patient if the cancer diagnosis is wrong—just like a fiscal stimulus might be counter-productive if the problem is lack of confidence / spending, and just like a "quantitative easing" might be counter-productive if bank reserves are not the main problem.