The Impact of Powell, Caputo, and the Greenspan Rule on Economics

The Greenspan Effect: The Power of Actions over Words in Economic Policy

Greenspan, as the former Chairman of the Federal Reserve, once shared an anecdote about a person who joined the bank’s Monetary Policy Committee and came to him with a proposal to speak at their former university and on television. Greenspan advised the person to decline the invitation and if they had to go, not to speak. This experience revealed his belief in the power of actions over words.

In his role as Chairman, Greenspan resisted adopting an inflation targeting scheme in order to control prices. He believed that his main task was to deal with prices and that the power of economists’ words was overrated. Despite pressure from the Monetary Policy Committee, Greenspan rejected the proposal to adopt this scheme.

Similar sentiments regarding communication and transparency in economic policy can be seen in the current government of Javier Milei. Former Economy Minister Nicolás Dujovne based his stabilization plan on a fiscal announcement that surprised the markets, but some movements were contrary to his campaign speech and specific details of the plan are not widely known.

This lack of clarity and transparency in economic policy is a risk, especially in fiscal policy. As Ben Bernanke explained, providing ambiguity in non-cooperative games like poker is different from the cooperative game of monetary and fiscal policy. The need for clear communication becomes apparent when attempting to establish a fiscal anchor, as Dujovne emphasized.

In contrast, clear communication has become a priority in U.S economic policy under Jerome Powell’s leadership at Federal Reserve Bank recently gave an interview clarifying bank’s position emphasizing direct communication with public and market is crucial for effective governance .

The importance of clear communication can be seen in Argentina where it seems that economy officials are following Greenspan rule by giving vague information and avoiding specific details which leads to assumptions and speculation in market .

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