Why Bernanke Isn't Acting (With Metaphors!)

Wading through the complex and important debate over the Federal Reserve's response to the recession, I'm sure you're thinking what I'm thinking: monetary policy could sure use more metaphors.

Lucky for us, The Nation editor Chris Hayes thought the same thing. In a segment on the Rachel Maddow Show, he compared the U.S. economy to a farm in a drought (recession) and imagined the Federal Reserve in charge of irrigation. Its job is to keep water (money) flowing to grow crops (jobs), but not so much as to cause flooding (inflation). Neil Irwin walks the metaphor forward to explain why the Fed isn't dumping water from helicopters with 17 percent broad unemployment:

This drought is so bad that the Fed has already drained its main reservoir completely (cut the federal funds rate to zero). So if it's going to take new efforts to water the fields, it has to find more water through some unconventional means, such as by airlifting water in by helicopter, or piping it in from a nearby lake. (These are the equivalents of quantitative easing, or buying Treasury bonds and other securities to increase the money supply and drive down long-term interest rates)...

The problem is, while the Fed has lots of experience and knowledge about how the controls on its normal reservoir work, and how much to open the valves to get the right amount of water onto the fields, these other tools are untested. If they pipe water in, they're not sure how much will get to the fields--it might be too little to do much good, and it might be so much as to cause flooding.

They're not sure about the impact of helicopter airlifts; they might be effective at getting more water onto the fields, but there's a small chance they'll crash and burn and thereby set the fields on fire. (That's what would happen if quantitative easing by the Fed caused global investors to believe they would continue printing money to fund budget deficits indefinitely, which could cause a big rise in inflation expectations and a long-term loss of confidence in the U.S. economy).

Drink the whole metaphor at the Washington Post.