Greenspanese: The secret language of central bankers

Harold F. Schiffman haroldfs at
Tue Apr 3 12:07:00 UTC 2007

The secret language of central bankers

'If I seem unduly clear to you," Alan Greenspan said to his political
masters in the United States Congress, "you must have misunderstood what I
said." It was 1987, and the newly-confirmed chair of the Federal Reserve
was elaborating on how he had "learned to mumble with great incoherence"
in the short months since he had "become a central banker". Greenspan was
a strong believer, in practice if not in theory - for who could understand
his theory? - that central bankers should speak in an opaque and
convoluted dialect. In comparison, the Oracle at Delphi's advice to the
King of Lydia - "If you attack Persia, you will destroy a great kingdom" -
is clarity itself.

There was an old argument for "Greenspanese": voters or politicians or
both are inherently short-sighted and myopic. They would always see and
want to grasp the benefits of lower interest rates and a little more
demand pressure - more production, more employment, higher wages, and
higher profits in the short run. But they would either not see or be
cynically indifferent to the problems of stagflation that would inevitably
follow. The job of the central bank, according to Greenspan's distant
predecessor, William McChesney Martin, was to "take away the punch bowl
[of low interest rates] before the party really gets going".

But, the argument went, the Fed could not say that this was what it was
doing in clear and transparent language, for, if voters and politicians
could understand central bankers, they would then force them into
following destructive inflationary policies that would be worse for
everyone, at least in the long run. By using an opaque and convoluted
idiom, the only outsiders - reporters, politicians, and academics - who
would be able to understand what the central bank was saying would be
those who had carefully studied the issues and the language. This, in
turn, would lead them all (with the rare exception of a maverick critic
like William Greider) to understand and approve, and to agree that talking
in "Greenspanese" is essential for enabling central banks to ensure price

There seems to be general agreement today that this argument no longer
applies, if it was ever truly valid. Voters and politicians today, it
seems, fear inflation and are willing to accept occasional economic
recessions and unemployment above its natural rate as unfortunate but
inevitable consequences of the necessary and beneficial pursuit of
long-term price stability. The debate about monetary policy can thus be
fruitful and productive even if it is no longer restricted to those who
have learned "Greenspanese". Thus, all across the North Atlantic core of
the world economy, central banks have embarked on a "transparency"
initiative to make their organisation's goals, guesses, procedures, and
policies more widely and clearly known. They are relying on economists'
basic predisposition to believe that more information is always better
than less, that individuals are good judges of what they need to know, and
that they are able to evaluate and place in perspective what they know.

But recently - and increasingly so in recent months - central bankers'
doubts about the utility of the transparency initiative have increased.
The more central banks talk, and the clearer they try to make their
language, the more it seems that markets may be reacting excessively and
inappropriately to statements that are not really news at all. More
information may be leading not to better knowledge, but to more confusion.
We economists have a hard time figuring out why there appears to be so
much static on the communications line. Why were so many people in
financial markets so sure that the Fed's late-March meeting statement
heralded a likelihood of interest-rate hikes soon, rather than being
simply an acknowledgement (as the Fed explicitly stated) that what had
been very unlikely was now a possibility? Why are cable TV personalities
so eager to overstate how quickly central banks change their view of the
likely future? Why do participants in financial markets trade on the
advice of cable TV personalities when a small amount of number-crunching
reveals that the benefits must be lower than the transactions costs
incurred by over-frequent trading? We don't have answers to these
questions. So we really don't know whether we should tell central bankers
to brush up on their Greenspanese.

J Bradford DeLong

J Bradford DeLong, professor of economics at the University of California
at Berkeley, was assistant US Treasury secretary during the Clinton


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