Jump Start VS. Seed Corn
Metaphor is applying the attributes of one thing directly to a different thing. This differs from simile. In smile, one contends that the attributes of one thing are similar in significant ways to the attributes of another thing. A simile might read: “a good book is like a meal to an avid reader.” It expresses a degree of relatedness. If we wish to express a greater degree of relatedness, indeed congruity, we drop the word “like.” “A good book is a meal to an avid reader.” A metaphor is the expression of identity, clearly false. No reader can live on books alone. It is poetic speech. When a happily married man says “my wife is an angel” we understand what he means.
Metaphor is used to make more clear (”in one fell swoop”) or to urge others to treat one thing as if it were another (”this is my body and blood”). Metaphor is compact; it is an argument in a sentence. Shakespeare said: “The lunatic, the lover, and the poet. Are of imagination all compact.” All deal in metaphor.
When the people with power say that their spending will “jumpstart the economy” of course there is no literal car to jumpstart. There is an attempt to apply an ordinary life experience to a complex international economic system and convince you, as well as themselves, that pretending an economy is a car with a bad battery will provide insight into how to get things back to gushing growth, soon.
It is clear that the Secretary of the Treasury is dealing with metaphor because he says “we must jumpstart the economy,” he does not say “we must inject money into key institutions so that the economy will react like a car with a bad battery and start firing on the electrical power of its alternator.”
Why is one thing like the other? Why is the economy of the US like a car with a bad battery that will come to roaring life once a few volts are applied to the terminals. The back story for this metaphor runs something like this. If the government gives lots of people a shot of money to spend, or the government spends lots of money itself, goods and services will fly off the shelves. Sellers who are sitting around pouncing on the few customers who stray in will suddenly have lots of sales. Their inventory will go down causing them to order more supply. The factories will get more orders causing them to ramp up production and call people back to work. New workers will have full pockets of money and add to the buying themselves, causing more shelves to run dry causing more orders and more production, “und so weiter.”
Why did things grind to a halt? I guess if you pushed the question someone would say, “People were borrowing lots of money. As long as homes and oil and materials and everything was going up in price, borrowing to buy things was a pretty good game. One day people started realizing prices were just too high relative to their income, debt suddenly looked foolish, oil started dropping, everything started dropping, borrowing to buy anything was suddenly disfavored. Everyone stopped borrowing to buy assets. No consumer demand, less sales, layoffs, contraction, depression. The loss of jobs causes less spending which in turn causes more jobs to be lost; a feedback cycle.
There is another way to look at an economy. That way is using the metaphor of the farm. Suppose a farmer only grows corn. At harvest, good season or bad, he sets some corn aside to consume and he sets some corn aside for next year’s seed. The more corn consumed the less corn seed.
Now if a farmer has a bad year no one would tell him to consume more of his diminished corn and forgo planting the full field for next year. No, that advice requires an economy. Suppose there are ten farmers and five grow corn and five grow wheat. Wheat farmers trade some wheat for corn to consume and corn farmers trade some corn for wheat to consume. Both keep some of their own products for consumption and for next year’s seed. Corn farmers have a terrible year. There is less corn for the corn farmers to consume, trade and apply as seed. Wheat farmers cannot trade any wheat away for corn as no corn farmers are buying wheat. There is a dearth of corn demand and a dearth of wheat demand, because no one can afford to buy much of either. Now, would one advise the farmers to apply more of their collectively poor harvest to seeding next year’s field, or to trading for the other product?
What the current economic consensus seems to be is that the government should issue script allowing corn farmers to buy wheat on a future promise of corn. Then there will be more demand for wheat and when the wheat farmers have the ability to sell wheat, they will also buy corn. The farmers will have reason to produce more of both crops next year. How will they produce more next year when this year’s joint crop was bad and, due to script issuance, a larger share than normal of the bad crop went to consumption then to seed? That is where the “jumpstart” or the “priming the pump” metaphors are silent. If we apply more of everything to consumption, where will the investment for more production come from?
Every good and service in our economy can be classified as investment or consumption. If it meets a human want or need directly it is consumption. If it is used to produce another good or service which in turn or eventually meets a human want or need it is investment. When Detroit buys a welding robot it is clearly investment. When I buy a car it is consumption.
Why do we have recessions? In the Seed Corn metaphor, we simply applied too much of our resources to consumption during the good times or made the wrong investments. We built too many houses, particularly large, expensive houses. Why did we do that? Well the government seems to have decided that building and selling houses is better than building and selling machine tools. Housing has a tax break allowing unlimited capital gain on your home to be realized by you tax free. That could be a million dollars tax free and you can get your hands on the tax free money before you sell your house by a mortgage loan. Housing has a government guarantied corporation that buys mortgages in the secondary market. Machine tool loans are not nearly so liquid. More houses were consumed and more investment went into goods and services that produced housing. This is a misapplication of resources. It causes distortions in the market.
Today the distortions are obvious and rectifying. When you have a lot of newly useless tools (investment) and lots of nearly useless innovatory (homes), painful adjustments are underway. People who invested and people who bought are going to get wiped out. What does the government propose to do? Preserve the distortions and misallocations with the money that would otherwise move to productive purposes.