So...an economy can be thought to be something like an engine. Runs fine most of the time. Runs badly sometimes.
There are several stories as to why the economy runs badly, but most of us (non-technical economists) are really as clueless as we are (non-automotive software engineers) about how the software in our car regulates fuel consumption for maximum efficiency.
My thought for the best metaphor is that the money supply is the oil that keeps the engine running. No oil, no worka. Too little oil, grinding sounds, and burnouts. Enough oil...engine runs smooth. Metaphor fail when there's too much money.
The alternative (interesting) perspective is that the economy is NOT like an engine. It's like a Walmart (that offers Haircuts, financial services, tune-ups, food, and clothes). This line says that our problem is that we had a lot of folks doing haircuts, and what we need now is more auto mechanics, and it takes quite a while for folks to (a) learn that there's a glut of hairstylists, and (b) learn the skills to be a mechanic.
AFAICT...the evidence is pretty strongly on the side of the oil-metaphor. Textbook macro argues that "quantitative easing" or "NGDP Targeting" or "putting more money in the system any way we can" would solve this problem. Indeed, Sumner argues that during every recession we've ever seen, the macro folks say, "this one is unique," while after every recession, the macro folks say..."Ya know, it seems to have been a money supply problem again". If that's true (and I'm taking Sumner's word for it), then NOTt trying NGDP targetting is idiotic.
Maybe we're wrong...but when you have a consensus about all prior recessions, and a new one comes along...ignoring the consensus seems dumb.
I am not a macro-economist, and I'm basically an anarchist who thinks government causes most problems (including this recession). So...add salt liberally.
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My personal metaphore is that the economy is a second order diferential equation.
Government taxation and regulation are damping coefiicients.
Yes it's oversimplified, but to first order it's a fiar description.
On a completely unrelated note, I met the authors of "The Unincorporated Man" this weekend, and bought a signed first edition.
The economy is like a garden.
And all the weeding, pruning, fertilizing and watering the government can do is done by looking at 1 year old photographs taken from an aeroplane at night.
Clearly the best growth is probably going to be achieved by not doing anything... once the basic parameters are set.
Basic parameters:
1. you need a fence around the garden to keep out grazing animals.
2. you need the right amount of water (maybe water is the money supply?)
3. Take steps to minimize the risk of fire. Note: you can't fight fires when they happen, because you won't even know until the aerial photos come back from the developer in 12 months time.
More metaphors:
Money is language. We use money to communicate. The meaning of money is an emergent phenomenon. When government tries to specify the meaning of money, we get Newspeak, and the fed board of governors sound like lunatics.
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