The Problem with Code Words

By J.D. Alt

Christine Lagarde, managing director of the International Monetary Fund, was recently quoted in the Washing Post as having said something quite remarkable given the IMF’s historical position on monetary policy: “…we have to repeat over and over that monetary policy cannot be the only game in town, and that there has to be a combination of sound fiscal policies, use of fiscal space for those countries that have fiscal space in order to support growth and rejuvenate that growth.” The problem is, what do these words and phrases mean to most people who read them—including most U.S. politicians and economic pundits? What do they really mean, for that matter, in Lagarde’s own mind? Our collective thinking—and hence our actions—seem entrapped by “code” words which we assume everyone understands to mean some specific thing even though we’re not entirely clear what they mean ourselves. The result is massive confusion, hesitation, and inaction at a time when bold and effective steps are desperately needed.

I would wager a week’s wages that most American political leaders believe that the phrase “sound fiscal policies” means REDUCING government spending in order to lower the federal “debt”. I’d further wager that most political and economic pundits will believe that having “fiscal space” means being in the fortunate position of having ALREADY reduced federal “debt” to levels that make it safe to borrow again. But geeze!—what country is in a position to do that? What in the world is Christine talking about? And what does she mean by “monetary policy” not being “enough”? She must mean that it’s not enough just to guard against the sneaky tactic federal governments invariably try to employ to pay off their loans—the tactic of just printing money. “Sound fiscal policy”, we all apparently understand, requires having “sound” money—but that, in itself, is not enough to “support and rejuvenate growth.” This is what she must be trying to get at, right?

But if Lagarde’s comments are intended to be a call to action, what exactly are we supposed to be doing?

In World War II, the U.S. military famously broke the Japanese navy’s Code before the Battle of Midway—and then created its own unbreakable code by simply employing Navaho Indians to talk back and forth to each other in their native tongue. The Japanese didn’t have a clue what was going on. That’s what Code Words are for—to keep other people in the dark. So why are we using Code Words when we talk to ourselves about our economic plight and plans? Why is Christine Lagarde saying these things?

Wouldn’t’ it be refreshing—and perhaps even useful— if Ms. Lagarde just came out, rolled her eyes with exasperation, and said:

“We have to repeat over and over that simply issuing new currency into the banking system doesn’t translate into the creation of new jobs by private industry—nor does it result in the building of anything useful to the collective good. What we desperately need, in order to support and rejuvenate growth, is for federal governments, around the world, to start issuing fiat money on a very large scale—and begin spending it as directly and rapidly as possible to pay their citizens to repair and improve their cities, communities, ecological environments, and local agricultural capacities—and to create the collective and public services that will improve the everyday lives of people everywhere.”

But no. For some unexplained reason Christine can’t say it that way: she has to speak in Code. And so we’re all left in the dark. It’s a mystery, really, why she even bothers to say anything at all.

12 responses to “The Problem with Code Words

  1. J.D., I had to laugh when I read your words. I just finished a post closely related to your subject. The mindset problem is thinking there are both fiscal and monetary policies available to a sovereign government that supports their own fiat currency. The very basic central bank model, born when precious metals were money, simply does not work in the era of fiat money for a very simple reason. The sovereign government has the powerful tools to control the money supply (taxing and spending) while the CB has the responsibility for controlling the supply with very weak tools ((overnight interest rate and buy/sell govt debt). Either the tools should move or the responsibility should move. And if the government is to remain sovereign then the responsibility must move. That’s it in a nutshell and you can be very sure that the brilliant lady, Christina, cannot afford to put it as I have stated it above.

  2. roger erickson

    Even what you hope Lagarde would say would still be baffling to the vast majority of JJ Sixpacks, and their little NeoLiberal tutors too.

    Why not skip all the details about how feedback & monitoring systems are constructed, and just focus first on the consensus Desired Outcome – exploring options worthy of this electorate, and fully employing all citizens in achieving those national goals?

    Most people in most professions don’t want to have to know fiat currency operations.

    Never tell electorates HOW to do things. Get their consensus on WHAT to achieve, then let them apply their ingenuity. (The task of policy is to do this on an even bigger scale)

    Most people in different professions DO want to know that people in banking & economics professions have adequate self-regulating methods ensuring that those professions serve rather than undermine National Policy, i.e., preserving & enhancing the general welfare of the people.

  3. Thomas Bergbusch

    This makes it sound as if Ms. Lagarde has any understanding at all of what she is talking about. She does not, moreover, she does not really care: she is interested in her position, and the position of those like her, the self-appointed “elite”. The aim is social control: the populace, or peoples, need to be appeased, so SOME investment has to be made, and countries like Germany, running fiscal surpluses, are being “asked to do more” to stave off the threat of jacqueries. You see monetary policy can secure the positions of the lord bankers and of their advisors in the états généraux, but it cannot forestall popular unrest.

  4. That example of code-words as designed to keep people in the dark was perfect. Other code-words that should be denounced and shunned include anything ending in “ism.” THAT would really require some integrity. Finally, LaGarde’s phrase “policy-space” is cherry-picked from MMT lingo!

  5. I’m always suspicious about some emerging new form of neo-liberal trickery. To give her the benefit of the doubt, she is probably making a tacit suggestion that the job description of many politicians needs to be redesigned before we can move forward.
    In Canada, members of parliement have a duty to safeguard and ensure the wise use of “taxpayers money”. The language seems so vague it’s almost code itself, yet I suspect something similar to this can be found in many countries. So discussions about the health of the economy invariably gravitate toward discussion about “how much money is in the coffers”. I wish i had a dime for everytime I have heard that phrase on the national news.

  6. As long as most Americans understand economy in terms of their personal financial situation and checkbook management, it really doesn’t matter how obscure the code words. They think that government spending means more money out of their pockets thru taxes or hyperinflation thru money printing. Deeply propagandized by right wing and neoliberal economics, it will take a long time to shift that.
    What burns me it that many political leaders understand the code words, the actuality of a fiat system and are quite willing to manipulate the ignorance of the public to their own advantage. Warren Mosler has somewhere mentioned that Clinton understood MMT and fiat but just thought it would be too difficult to explain to the public and thus was not politically viable. I’m certain that Dick Cheney (deficits don’t matter) understands MMT and fiat money as he was ar0und Nixon’s administration in 1971. Nixon proposed a guaranteed annual income certainly based on the implications of the shift to full fiat in 1971.
    As long as oligarchs want cheap labor and a desperate, submissive underclass, they will use any methods necessary to keep them ignorant. It is ultimately a political issue. Or as they say, the confusion and ignorance is a feature, not a bug to be fixed.

    • Good comment. What got to me though was J.D. Alt held my interest until he got to his “solution;” government creation of money for government spending projects. Suddenly the demon of George Lakoff’s “Moral Politics” (a must read for any MMT’ers) and his “Strict Father Morality” jumped out and cue the NeoCons suddenly start flinging mud, which is Double Whammy Mud, not just the crazy belief that sovereign governments must balance their books like households or businesses, but the viewpoint government delivery of goods and services often has poor accountability whereas genuine market competition keeps the deliverers on their toes. If you’ve ever got seriously tangled up with government bureaucracy you’ll know what I mean. J.D. Alt needs to nuance up and sophisticate his arguments to meet this NeoCon challenge.

      • Schofield, I appreciate your comments here very much, and completely agree with you with regard to “government spending.” If you parse the words I put in Christine’s mouth, I hope you’ll see that I’m not really advocating “government spending”—but rather that sovereign governments pay citizens “as directly as possible” to build the things and create the services they need. In my mind there’s a big difference—actually a crucial difference. In other essays I’ve tried to suggest specific ways this “direct” spending could occur without the participation of “government” in any way (except for providing the dollars.)

  7. Big assumption there Roger – where is there any evidence that there is a National Policy relating to preserving & enhancing the general welfare of the people? It would be a good policy if it were ever implemented on a National scale, and in a practical manner. Unfortunately, the term itself is another one of the “code” words that are the subject of this article. Ask a dozen people what they think “National Policy” means and I’m pretty sure you would get a dozen different answers.

    • roger erickson

      Agreed, Guggzie;
      I didn’t mean to imply that there always is a consensus national policy re general welfare of the people, but only that that’s the constant goal we periodically return to, since it was clearly stated as the reason & purpose of the original US Constitution.

  8. Ask any therapist and he or she will tell you that coded language will destroy a relationship … and apparently many other things.

  9. She’s in “don’t blame me” mode.
    It’s sad that after all those years in college and law school she’s unable to read and understand what she reads, and unable to write a simple declarative sentence you and I can understand.

    Even worse, she shares illiteracy with nearly everyone in government.