Central banking analogies

Economists are fond of analogies to describe technical ideas.

Most of those analogies are confusing and/or useless. As I wrote in the introduction of Bankers are people, too:

Economists and journalists writing for lay audiences tend to use metaphors when explaining financial concepts. For example: ‘Cheap credit is like heroin. It’s addictive, and the economy can overdose from it.’ That may sound nice, but what does it even mean?


Here are some examples of analogies for central banking and monetary policy.


“The central bank can’t push on a string” – Unclear who first used this expression to describe monetary policy, but it goes back at least to 1935.


Economists sure love alcohol and drugs:

“The Federal Reserve, as one writer put it, […] is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” – William McChesney Martin, Chairman of the Federal Reserve (1955)

“We injected cocaine and heroin into the system and now we are maintaining it on ritalin” – Former Fed President Richard Fisher (2016)


Monetary policy is like holding a broom…

“Think of holding a broom upside down. That’s the standard view of interest rates (on the broom handle) and inflation (the broom). Anytime the Fed sees inflation moving, it needs to quickly move interest rates even more to keep inflation from toppling over — the Taylor rule. To raise inflation, the Fed needs first to lower interest rates, get the broom to start toppling in the inflation direction, then swiftly raise rates, finally raising them even more to re-stabilize the broom.” – Professor John Cochrane (2014)

…or is it more like painting?

“Monetary policy is […] a very complicated, indirect and delayed process. It is like painting a house through the mailbox slot at the front door from a slow driving van.” – Professors Gert Peersman and Koen Schoors (2012)1

“The FOMC is going to re-paint the Board room. In an effort to be open with the public, the FOMC polls the 19 for their preferred color choice and announces the results. The issue, it turns out, is contentious: the poll results show a rainbow of colors. […] But some eager observers form a color prediction by stirring the preferred colors together to get what they view as a ‘central tendency’ of the rainbow. […] The color choice? They’ll pick beige. That’s what large committees do.” – Professor Jon Faust (2016)


Actually, some argue, central banking is like driving:

“[The Fed is] driving an unfamiliar vehicle up a steep country road that has lots of curves and some muddy conditions, with a stop sign located at the top of the hill that is not yet visible.” – Professor Andy Levin (2015)


Or should we think about monetary policy in terms of family life?

“People never take baby pictures when the diaper is being changed. Monetary policy is similar; nobody talks about the dirty work.” – Professor Martin Hellwig2


Some central bankers have used metaphors that can only be described as baffling:



So, should economists see themselves as scientists, engineers, plumbers, painters, drivers or childcare workers and use analogies from those professions to discuss financial topics?

The answer is NO.

Author, cartoonist and economist Scott Adams tells us why:

“Analogies are good for explaining concepts for the first time. But they have no value in debate. Analogies are not logic, and they are not relevant facts. An analogy is literally just two things that remind you of each other on at least one dimension. When I see a cauliflower, it reminds me of a human brain, but that doesn’t mean you should eat brains in your salad. […]

There’s a reason your plumber never describes the source of your leak with an analogy. He just points to the problem and says it needs to be repaired or replaced. No one needs an analogy when facts and reason can do the job.” – Scott Adams

Update 1 March 2018:

Another contestant for taking your central banking metaphor way too far:

Update 29 June 2018:

Update 25 March 2020:

  1. Quote translated from Dutch.
  2. I heard prof. Hellwig say a variation of this statement at Bruegel, it’s not an exact quote.

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