Pushing on a String (Economics) - Explained
What is Pushing on String?
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What is Pushing On A String?
Pushing on a string is a metaphorical expression that states that influence is more effective when it works in one direction. In macroeconomics, pushing on a string is a strategy that reduces the effect of the central banks and the monetary policy in an economy. According to this theory, monetary policy cannot compel businesses or households to spend if they choose not to, hence, the monetary policy only works in one direction; impacting government spending. According to pushing on a string, monetary policies, federal reserves or resolutions of central banks are not sufficient to stimulate an economy, especially in cases where financial institutions are reluctant to lend and private sectors reluctant to spend.
How does Pushing On A String Work?
The pushing a string strategy often means that the government must resort to borrowing to stimulate the economy, especially when there is little or nothing that can be done to stimulate it. Pursuing a string maintains that borrowing would be the last resort after monetary policy and other efforts by central banks are ineffective. The term pushing the string was attributed to John Maynard Keynes, but there was no given evidence that he ever used the phrase. However, several economists have used the phrase in situations where little or nothing can be done to stimulate the economy. Pushing the string was used in 1935 in a House Committee on Banking and Currency Congress during a deliberation on the Great Depression and how to stimulate the economy. Marriner Eccles, the Federal Reserve Governor told the house "Under present circumstances, there is very little, if anything, that can be done." Then a congressman replied by saying couldn't he pull a string? Before the congressmen and regulators could think of 'pushing a string', they had already exhausted all means to stimulate the economy, including injecting trillions of dollars into the economy. Monetary policies could also not compel households and businesses to spend as all they were concerned about was saving, making monetary policy futile.
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