Tuesday, November 01, 2005

The Advantages of Confusion--Greenspan

Confusion and ambiguity in the style of Chairman Greenspan has its advantages, so the forthcoming change to Dr. Bernanke with its gain in clarity, as described in the NYTimes, may not be totally advantageous.

What's the advantage to ambiguity? Perhaps several, but the one I'd point to is flexibility. One thing we can be sure of is the the Fed board is going to be wrong at some point. Unfortunately we Washingtonians, unlike the rest of the country, usually respond to error by repeating our error, by coverup and concealment. See our current (and past) President for proof. It's a human thing--in times of uncertainty (and error equals uncertainty) you (I) seek the security of the known.

Unfortunately sometimes the world gets locked in feedback cycles, in vicious circles so we need what the great liberal and bureaucrat J.K. Galbraith called "countervailing power". In sailing terms familiar to readers of Forester and O'Brian, it's "coming around on the opposite tack".

So, if a change of course is needed to break a vicious circle who is more likely to do so: someone who has staked out a clear position and rationale and committed to a model supporting the position, or someone who operates behind a smokescreen (forgive the mixed metaphors)?

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