The Secret Language of Central Bankers

For years, central bankers used opaque and convoluted language to insulate their mission of ensuring price stability from political pressure for low interest rates. Have central bankers' recent efforts to improve transparency about their goals and procedures proven that the old approach was right?

“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.”

Mr. 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 punchbowl [of low interest rates] before the party really gets going.”

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