• Fri. Mar 1st, 2024

The Power of Words: Why Clear Communication is Critical for Economic Success


Feb 11, 2024
Economists Powell, Caputo and their application of the Greenspan rule

In the past, former Federal Reserve Chairman Alan Greenspan was once asked about a proposal made by a member of the bank’s Monetary Policy Committee. The colleague had been invited to speak at his former university and on television, and Greenspan advised him not to go, and if he had to, not to say anything. This tactic was based on Greenspan’s belief that the power of words could greatly impact the economy. He resisted adopting an inflation targeting scheme to control prices as he believed that economists’ words were overrated.

Greenspan believed that the main task of the Federal Reserve was to deal with prices, and he rejected this proposal as he did not want monetary policy to be transparent to investors, companies, and savers. Currently, Javier Milei’s government seems to be experiencing a similar dilemma as they have based their stabilization plan on a fiscal announcement but some of their moves are contradictory to their campaign speech. Additionally, their explanations for reaching their objectives are not convincing which may lead to confusion and uncertainty in the market.

This lack of clarity has been exemplified by Jerome Powell’s interview where he clarified that the bank would not lower rates in March, despite market expectations. In Argentina too, economic officials are following Greenspan’s rule of “going but not saying anything” in their public appearances which has led to uncertainty and speculation in the market.

Overall, Greenspan’s story serves as a cautionary tale for policymakers about the importance of clear communication and how it can greatly impact economic outcomes.

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