Former Federal Reserve Chairman Alan Greenspan once told how a person joined the bank’s monetary policy committee and soon arrived in his office with the following proposal.
—Alan, I am invited to speak at my former university and on television.
The President, who had a few years of experience in the role and in the environment, told him:
—Look, if you can, don’t go, say no. But if you have to go, don’t talk. And if you have to talk, don’t say anything.
Greenspan was the economist who succeeded Paul Volcker as head of the Federal Reserve in 1987. From the beginning he opposed the adoption of an inflation targeting scheme to control prices for a tactical reason: he believed that his main task was to manage prices and that the power of economists’ words was overestimated.
At a 1989 Monetary Policy Committee meeting, and after pretending to be distracted for a couple of years, Greenspan directly directed rejected the proposal to adopt the inflation targeting system, which was fundamentally based on adjusting the interest rate according to the target. But one of the key aspects for this mechanism to become effective is the transparency with which monetary policy is conveyed to investors, companies and savers, so that they understand why the monetary authority will be able to control inflation ‘almost manually’. chosen interval. Greenspan wanted nothing to do with it. “We are more what we do than what we say we do”summed up one of his advisors one day in 1989, after George HW Bush won the election, promising not to raise taxes. and then he did the opposite.
Some of this seems to pass through Javier Milei’s government At that moment, as former Economy Minister Nicolás Dujovne explained days ago in an interview with Clarín, he based his stabilization plan on a fiscal announcement that surprised the markets and served as an anchor to dispel the specter of hyperinflation. However, some select movements were contrary to his election speech (the increase in withholdings) and the explanations to see how the objective is achieved are not forthcoming and some are still not convincing.
In the television appearances made this week by the Minister of Economy, Luis Caputo He did not provide details on what numbers will reflect the highest collection and lowest spending to reach the total deficit of zero. On Economy they unofficially comment that 75% of the efforts do not depend on the Omnibus Law and even the consultancy firm EcoGo says that it would be 80%. But the numbers and sources that allow this exercise to be sustainable are unknown. Currently.
Greenspan was in favor that government economists, and especially the Central Bank, convey confusion so that certainty does not encourage speculation or deception. “If I seemed too clear to you, you probably misunderstood what I said.”he once remarked to a congressional representative.
There are those who believe, however, that acting in this way is a risk and that communication must be clear especially, as Dujovne says, when the emphasis is on the fiscal anchor.
“Ambiguity is used, but in non-cooperative games like poker”Ben Bernanke once explained. “Monetary policy is a game of cooperation and the point in all this is that the markets are on the side of the policy maker and we have to work”.
What Bernanke says is also applicable to fiscal policy, which It is a game of cooperation that we saw at the Congress in recent days. Perhaps the government’s disadvantage was that it was not interested in negotiating the Omnibus Law as a cooperative game.
“If we do not provide information about our intentions, one way or another the market will make assumptions for us and come to some conclusion that will confirm that we are not capable of informing and that we prefer that the market shapes information and expectations from the subtle air. “concluded Bernanke.
In the United States, things changed and the Bernanke model ended up taking over.
Last Sunday, for example, the current head of the Federal Reserve, Jerome Powell, gave an interview to the program 60 minutes, from American television, where he had to come out to clarify that the bank will not lower rates in March as the market thought or believed would happen. In fact, for a year and a half now, investors have systematically believed or bet that the Reserve would lower rates and this has not happened. Perhaps for this reason Powell decided to send a direct message on that television program, and be exhaustive as Bernanke advocated, instead of mumbling and hiding as Greenspan proposed.
And what happens in Argentina?
For now, the Greenspan rule is most imposed here on economic officials. If they have to speak they do it but as the Master says (Greenspan) “Go but don’t say anything.”
Caputo doesn’t give all the answers when he speaks. Political circumstances perhaps force him to do so. And also the looming recession.
Source: Clarin
