There is an old expression – to drive someone to drink – which means to annoy them to distraction. My favourite version of it is George Thorogood and the Destroyers’, “Son, you’re gonna drive me to drinkin’ if you don’t stop drivin’ that Hot Rod Lincoln” (which, now that I have thought of it, I can’t seem to get out of my head). That expression birthed multiple books entitled A Drinking Man’s Guide to topics from Scotland to Cambridge, women to marriage.
As far as Google tells me, however, there has never been such a guide to monetary policy. Given that recent monetary policy issues have been vexing enough to qualify—from a long period of near-zero interest rates (often negative in real terms), flaps over “transitory” inflation that wasn’t so transitory but seems to have been a massive surprise to monetary authorities, to only semi-scrutable Federal Reserve plans, modifications and messaging—perhaps it is worth considering a few connections that might appear in a drinking man’s guide to monetary policy.
Just like drinking, expansionary monetary policy can provide a temporary (or transitory) high at first (faster real output growth and reduced unemployment). However, the ill effects come later (in an inflation “hangover”).
If you continue expansionary monetary policy long enough, you can do serious, lasting damage to yourself (cirrhosis of the economy). Just as imbibers build up a tolerance for alcohol, people build up a tolerance for expansionary monetary policy via adapting expectations, requiring ever increasing amounts of monetary expansion to keep people fooled enough to stay “high” for a bit longer, with compounding damage and greater difficulty in undoing those consequences later.
Once a tolerance to drink or expansionary monetary policy is established, withdrawal symptoms worse than any hangover can result if you stop (as in a stagflation scenario that haunts the dreams of all those making fearful references to the 1970s), especially if it is unexpected. Further, that hangover is likely to persist awhile (to decelerate inflation) before you feel better again and can get back to a “normal” life.
