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.

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