New York Fed Governor, William Dudley entertained his audience during a recent speech with an analogy about the US central bank’s aggressive monetary policy stance. The US economy, he mused, is like a car stuck in the mud: ‘You don’t stop pushing the moment the wheels start turning – you keep pushing until the car is rolling and is clearly free.’ The reasoning was undeniable. It is obvious that if you stop pushing the car will simply slip back into the mud. Then you will have to start all over again after having already spent a lot of your energy. I have actually had the experience of pushing a car out the mire and I can tell you the biggest effort needed is precisely the last shove that that gets the vehicle onto less boggy ground. Of course, the Fed must redouble its efforts in order to get the economy back onto the path of self-sustainable growth.
On Friday, Rick Santelli, a news editor of TV network CNBC, provided an analogy of his own. The Fed is like a huge fire hose gushing water at full pressure, he proffered, and the economy is like a parched geranium plant twenty miles away. ‘Sooner or later,’ bellowed Rick with his trademark faked indignation, ‘some water will seep into the cracked earth supporting that withered plant but, in the meantime, all of the area surrounding the hosepipe will be completely inundated with water.’ Of course, the Fed policy is completely misguided. Policymakers must stop this nonsense immediately and find more direct and effective ways to address the economic malaise.
Wait a minute – these analogies lead to two wholly contradictory conclusions about what the Fed should be doing, yet each one sounded so plausible, so convincing. The truth is that similarly believable analogies could be fashioned to support any opinion that someone might have about the US economy or about the Federal Reserve Bank. An analogy really is a very poor argument to bring to a debate. So why do knowledgeable and intelligent people use them? The answer lies precisely in their believability. An analogy is little more than a short story that seeks to exploit our availability heuristic. The more easily the situation described in the story comes to mind – the greater its cognitively availability – the higher the probability we tend to attach to its likelihood. This availability is typically enhanced when the story contains much detail, colour or drama. So the stickiness the mud, the tractionlessness of the wheels, and the gushiness of the hose, all add to the saliency of the story and therefore to its believability. Even the thirsty plant cannot be just any anonymous bloom; to exploit the availability heuristic it has to be a specific variety, a geranium for instance, rooted in a dried, cracked, and unforgiving earth.
The extreme malleability and believability of analogies make them a formidable weapon for those who wish to shape our opinions. Beware: when you hear someone rely on an analogy to try to convince you of something, alarm bells should ring.