Monetary Metaphors

Metaphors are important to how people think about the world, so I think it’s worth discussing them explicitly. Many people, I think, view the relationship between a central bank and a parliament as like a canoe. You’re both paddling the thing in tandem. And if the boat’s not getting to where you want it to go, the sensible question is to ask who’s not paddling hard enough. If you have more inflation than real output, then you need parliament to paddle more. But if prices are dipping into scary deflation territory, then maybe the central bank has to step up.

A different way of thinking about it 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.