• Mon. Mar 4th, 2024

From Greenspan to Milei: The Power of Words in Economy Management

ByEditor

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

In the United States, former Federal Reserve Chairman Alan Greenspan once gave advice to a member of the bank’s Monetary Policy Committee on the power of words and their impact on the economy. Greenspan believed that economists’ words were overrated and resisted adopting an inflation targeting scheme to control prices. He believed that the main task of the Federal Reserve was to deal with prices and that transparency in monetary policy would not be beneficial for investors, companies, and savers.

Currently, Javier Milei’s government seems to be facing a similar dilemma in Argentina. While they have based their stabilization plan on a fiscal announcement, some of their moves are contrary to their campaign speech, and the explanations to reach their objectives are not convincing. This lack of clarity may lead to confusion and cause uncertainty in the market.

The US Federal Reserve is also experiencing a similar issue with its current head, Jerome Powell. In an interview, he clarified that the bank would not lower rates in March, which contradicted market expectations and demonstrated the importance of clear communication between policymakers and the market.

In conclusion, Greenspan’s advice serves as a cautionary tale for policymakers about the power of communication and the importance of clarity in their public statements. The same lesson should be taken into account by policymakers in Argentina to avoid confusion and speculation in the market.

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