Tuesday, 28 April 2009

Rename the unpalatable

You may foresee that decisions you choose to take (or have to take) will have both upsides and downsides. In fact they may be downright unpopular. You should do what you can to create a new language in which to describe your decision.

Suppose you are Chancellor of the Exchequer. You decide to increase the money supply. US economist Milton Friedman said it would be theoretically possible for governments to drop large amounts of cash out of helicopters for the public to pick up. Non-economists may talk of “turning on the printing press”. More obscure mechanisms may be used nowadays but they amount to the same thing.

You may be looking to make life easier for people to buy things, or bankers to lend, or exporters to export to get the economy moving. And you might be lucky – get it right. However, the downside risk is a currency devaluation that makes imports and foreign holidays more expensive, then leads later to inflation and higher taxes. Some people might remember these negative consequences when governments tried this before.

So don’t talk of increasing the money supply. Don’t mention devaluation or inflation. Use a new and more positive-sounding language. Say “quantitative easing”.

And then add that there is no alternative - even if there is one (which there always is).

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