quinta-feira, 22 de agosto de 2013
Gillian Tett: Central bank chiefs need to master the art of storytelling
What skills does the next chairman of the US Federal Reserve really need? A decade ago, the answer seemed clear: political acumen, excellent economic knowledge, and the ability to analyse reams of statistics to deliver effective monetary policy responses. But if Douglas Holmes, a professor of anthropology, is correct, the Fed chairman needs something else, too: the linguistic and cultural skills of a preacher-cum-therapist.
The reason? During the past decade, Prof Holmes has been conducting research inside central banks to understand their cultural and social dynamics. In particular, he has analysed how central bankers across the world have tried to control inflation through actions and (most importantly) ritualistic statements. The research is unusually timely, as investors digest the latest Fed minutes – and economists, policy makers and journalists gather for the annual central banking conference in Jackson Hole.
In a forthcoming article in the Cornell Law Review, one of Prof Holmes’ conclusions is that many of us use the wrong yardstick for judging central banks. The issue is how we think the economy works (or does not). In popular discussions, it is often presumed that the financial system is like a machine. Thus central bankers are depicted as economic engineers: they judge what is happening in the economy by reading dials, and control it by pulling levers that affect the price or supply of money.
This clearly does not match reality, however. In the past decade, particularly since the crisis began, central bankers have increasingly been forced to recognise that economies are also shaped by mood swings. So central bankers are now trying to read this by using non-qualitative sources. Prof Holmes describes, for example, how central bankers in England, Canada and New Zealand gather “intelligence”
(ie anecdotes) from “the field”.
He writes: “Like his colleagues at the Bank of England, Governor Bollard, [former head of the Reserve Bank of New Zealand] was in the “field” each month travelling . . . to businesses . . . The governor and his staff communicate central bank policy during these visits but they also actively solicit stories – anecdotal data.”
Rather than operating the controls, moreover, central bankers also try to control economic outcomes by using words, not merely to influence price and interest rate expectations but to shape the mood. Thus the seemingly dry ritualistic texts that are issued each month – and supplemented by sober speeches – no longer merely describe policy; they are creating it too. Words are the weapon.
Janet Yellen, the vice-chair of the Fed, has articulated this shift particularly clearly. Earlier this year Ms Yellen, who is one of the leading candidates to be next chair of the central bank, observed that August 12 2003, the moment when the Fed started issuing regular statements, was a watershed. “On that date the [Federal Open Market] Committee [started] using communication – mere words – as its primary monetary policy tool,” she said. “Until then, it was probably common to think of communication about future policy as something that supplemented the setting of the federal funds rate . . . [But now] communication [is] an independent and effective tool for influencing the economy . . . explanation is the policy.”
The Bank of England’s embrace of inflation targeting, supplemented with forward guidance, echoes this pattern. So too, in Sweden, Canada and New Zealand. At the European Central Bank, Mario Draghi has been masterful at delivering economic outcomes through words, as much as deeds. Indeed, what is most striking is that Mr Draghi has managed to reframe public discourse about the euro not so much by what he has said but what he implicitly persuaded us to assume.
Of course, linguistic spells do not always work. The new BoE governor Mark Carney’s verbal experiments with forward guidance, for example, have had mixed results. But the key point is this: what is underpinning the financial system these days is not so much a tangible benchmark (such as a gold standard) but an intangible issue of “public trust”.
“[This] is about the creation of a monetary regime – a regime impelled by a series of communicative experiments . . . in which we are all participants, knowingly or not,” Prof Holmes argues. It is, he says, now defined “by the concept of a ‘public currency’, a term used in passing by Mervyn King, [former] governor of the Bank of England.” Central bankers now operate in an area where linguists, psychologists – and even anthropologists – know as much as economists.
This may sound irritatingly abstract to investors but it has at least two practical consequences. First, it suggests that we all need to spend more time reflecting on the implicit social contract and cultural messages in central bank statements.
Second, when President Barack Obama picks the next Fed chair – be that Ms Yellen, Lawrence Summers, former US Treasury secretary, or anyone else – it is no longer good enough to choose the economic equivalent of a mechanical engineer; nor “just” a brilliant academic or manager. The next Fed chair also needs to be a masterful storyteller and cultural analyst, who can read social sentiment, shape norms, (re)create trust and persuade us all to think in a manner that suits the Fed’s economic goals, without us even noticing.
Somebody, in other words, who can cast spells with both their spreadsheets and words. In short, what is needed is nothing less than a monetary shaman.