There is an old expression করা to drive someone to drink — which means to scatter and annoy. My favorite version of it is George Thoroughbred and the Destroyers’, “Son, you’ll drive me drunk” if you don’t stop running that hot rod Lincoln “(which, I think now, I can’t get out of my head). Multiple books have given birth to that expression An alcoholic man’s guide From Scotland to Cambridge, from women to marriage.
As far as Google tells me, however, there has never been such a guideline for monetary policy. Given the recent monetary policy issues have been bothersome enough to qualify – long-term near-zero interest rates (often negative in the real sense), flaps on “temporary” inflation that weren’t so fleeting but seemed like a huge surprise to the financial authorities, only Semi-testable Federal Reserve plans, changes and messaging সম্ভবত perhaps worth considering some of the connections that may appear in an alcoholic’s guide to monetary policy.
Like alcoholism, expansionary monetary policy may initially provide a temporary (or transient) high (rapidly increasing real output and decreasing unemployment). However, the worst effects come later (an inflation “hangover”).
If you pursue expansionary monetary policy for a long time, you can inflict serious, lasting damage on yourself (cirrhosis of the economy). Just as imbibers build tolerance to alcohol, people build tolerance for expansionary monetary policy by matching expectations, requiring more financial expansion to fool people into staying “high” for a while longer, compounding losses and more. It is difficult to undo those consequences later.
Once alcohol tolerance or expansionary monetary policy is established, withdrawal symptoms can be worse than any hangover if you stop (such as in a stagflation scene that chases everyone’s dreams of a horrible 1970s), especially if it’s unexpected. Plus, that hangover can last a while before you feel better again and return to a “normal” life (to reduce inflation).
Such withdrawal symptoms mean that expansionary monetary policy or efforts to stop drinking are often short-lived, as the adverse effects come first, while the positive effects come later. This could entice decision-makers to feel better now in the short term (drink again, perhaps an excuse to cure “dog hair”) or return to inflationary policy despite the long-term adverse consequences.
Like some alcoholics who do not keep their promise to quit if the monetary authorities fail to keep their promises to control inflation (i.e., they continue to provide excessive economic growth or restart, after slowing economic growth for some time, when political pressure (Built on), observers have learned not to believe such promises, or even come to see them as patrons of the opposite (it becomes very difficult for us to understand that financial restraint will last a long time to do much good about inflation. Ask Paul Volker that this How costly it is to bring down inflation if such expectations are deeply ingrained in the American mindset.
Some alcoholism counselors suggest that alcohol is difficult to quit despite its known adverse effects because hangovers come in sufficient quantities that do not connect your subconscious cause and effect. As a result, when deciding whether or not to drink, the subconscious takes over and often decides to drink. Similarly, expanding monetary policy can be difficult to abandon because policy changes and the long and variable gap between their effects, not to mention all the other variables that may change, make it difficult to pinpoint a specific policy decision. The result, especially when many negotiators are struggling with political bias to deny any responsibility on their part.
Just as it can be difficult for a drunken sailor to determine exactly where he is going (or for an observer to accurately predict where he is going) due to indecision or incomplete control over his movements, it can be difficult for the Fed to accurately determine where he is going. (Or Fed-observers to guess correctly) the future path of monetary policy. This may be due to disagreement or indecision, exacerbated by the Fed’s dual order for real productivity growth and lower unemployment, when there are often unavoidable transactions between them in the short term. Unless we know what the Fed is aiming for today and in the future, we will press hard to predict its policy intentions and actions.
As alcoholics hope that they will not have to deal with adversity that sucks for their promise of painless “healing”, policymakers and their supporters may insist that there is no problem that needs to be solved, or that they can pay for inflation. Almost painless “healing” (a promise “Soft or soft landing”) If people simply select, hire or follow the right person or prescription (a promised change that will magically revive the necessary tradeoffs).
Because there is a gap before all the effects of the registration of alcohol consumption, knowing when to stop it increases the difficulty of an alcoholic. Similarly, before the impact of monetary policy is fully realized, the gap always provides some policymakers and commentators with sufficient ammunition that now seems to be never the time to stop.
There may be more similarities between drinking and monetary policy, but my relative lack of experience prevents me from recognizing them. However, what we have seen provides us with ample reason for financial caution and skepticism from “experts” whose analyzes are highly inexperienced and who are not “cured”. Unfortunately, such knowledge that the current monetary policy may deviate from the norm may force many of us to drink when we would not otherwise do so.
Gary M. Gals
Dr. Gary Galles is a professor of economics at Pepperdine.
His research focuses on the role of independence, including public finance, public choice, firm theory, industry organization, and the views of many classical liberals and American founders.
His books are included The path to policy failure, Defective premises, Bad policy, Messenger of peaceAnd Line of Liberty.