“If people individually reduce their spending, the fiscal stimulists claim that government can fill the void by spending more. This is a portrait of government spending as providing a “shot of adrenaline for a slumping economy,” to cite a common image. To shift metaphors, the fiscal stimulists portray an economy as if it was a balloon. The problem of economic policy is thus one of controlling the air pressure in the balloon that is the economy. The task for policy is to keep a nicely filled balloon. This requires the avoidance of two extremes. One extreme is to inflate the balloon too much, so that it bursts. The other extreme is to let the balloon become so flat that it looses its buoyancy. In either case, the economy is portrayed in starkly simple terms, as the images of air pressure or adrenaline suggest. We are led to believe that it is easy to administer the correct policy, and to do so at the right time.
There are a number of problems with this common portrait. The central problem is that this portrait of economic life and processes conforms neither to reason nor to experience. An economy does not have the simplicity of a balloon. To the contrary, it is a complex web of commercial relationships that defies anyone’s ability to organize or control. It is out of recognition of this immense complexity that economists have hit upon such allusions as that of an “invisible hand” to express the character of economic activity. This allusion recognizes both that economic activity is highly organized and that this organization is not anyone’s creation or responsibility.” Read more.