Farmer Bernanke, dry fields, and other monetary policy metaphors By Neil Irwin

Irwin is reponding to the metaphor Christopher Hayes used on Rachel Maddows's cable show.

If the nation were a farm, Hayes argued, the Fed would be the agency in charge of water and irrigation. Its job is to keep water (money) flowing enough to maximize crops (strong job creation), but not pump in so much water as to cause flooding (inflation). We're currently in an extreme drought (a deep recession), but the Fed is refusing to pump in more water because it's afraid that doing so will cause flooding down the road.

Irwin adds:

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 either; 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).

Meanwhile, while the fields are still awfully dry, there has been a little bit of rain in the last few months (the economic recovery is underway, though it is sluggish). And Fed leaders' weather forecasting suggests that rain levels will continue to gradually return toward normal (their economic forecast is for continued expansion), which would render airlifts of water unnecessary.

I don't see global investors believing that the Fed will continue printing money, so the unusual measures are worth a try. Especially if we are entering a double dip rather than just seeing really, really slow growth. Before he was Fed chair Bernanke said the Japanese could have performed these measures but didn't in an act of malfeasance.

(via Ezra Klein)