 Hawks and doves, swans and ostriches, even owls. The language on central bankers is full of mysterious animal metaphors. That's why today we're going down a bit of a different route and we'll be taking a walk through the wildlife park of central banking and finance. You're listening to the ECB podcast, bringing you insights into the world of economics and central banking. My name is Katie Ranger. The American economist, Alan Blinder, wrote in his article on central banking and democracy. Millions of Americans still think that the Federal Reserve System, which is a central bank in the USA, is a system of government-owned forests and wildlife preserves, where, presumably, bulls and bears and hawks and doves frolick together in blissful harmony. And indeed, the misunderstanding is not entirely surprising. Articles and news stories on central banking and finance are often full of animal metaphors, so much so that you might think you need to know a lot about zoology to understand economics. But what do all these metaphors mean, and why are they used so often? With me here today is Gabriel Gluckler. As an advisor in our communications department, he's done a lot of work on language and monetary policy. Gabriel, thanks for being our wildlife expert today and welcome to the podcast. Thanks, Katie. Great to be here. Gabriel, you work in central bank communications. You're used to working with language and you know that every word counts. The language in economics and central banking is often very technical and difficult to understand. And as with complex topics, metaphors help make them understandable and relatable. But why do we have all of these animal references? I think we all like a complex and often complicated world to be made a bit more simple. And lumping similar things together and sticking a label mentally on those boxes helps us. And animal metaphors do precisely that. They provide an accessible and memorable label to classify people and events. Now, the use of animal metaphors dates back to all the way to the to the ancient Greeks, but is applying animal characters to explain the limitations of human reasoning. Or to take the behavior of animals that we observe there and that let them symbolize how we see humans behave. So like things like busy as a bee, quiet as a mouse. Now, hawks are predatory birds, while doves are peaceful. Even the dove, as you know, is the symbol of peace. Indeed. Already back in 1548, the word hawk was used to mean the one who prays on others. And we don't just have it in central banking and finance. For instance, in foreign policy, we also speak about foreign policy hawks. And I think that came back in 1962 in the Cuban Missile Crisis and observers tried to explain how people inside the Kennedy Administration were reacting to that crisis. And they classified those who were in favor of military operation and to distinguish them from those who were more in favor of diplomatic channels. And that's where also the hawks and doves comes in on that front. But it shows that these animal metaphors help us. And they're not exclusive to economics and central banking. But we need to understand the meaning behind them to use them usefully. Okay, so it's all about making the very complicated world a little bit simpler. All right, well, let's go for that imaginary walk through the wildlife park and take a look around. The first two animals that you come across when you enter are two birds that usually live close to each other as they share a common interest in monetary policy. Those of our listeners who are watching us and also watching what others write about us more closely may have heard the terms hawks and doves. Now, Gabriel, what do people mean when they talk about these two birds specifically? These animal metaphors are typically used to describe different positions that policymakers can take in their monetary policy decisions with the view to what they would like to achieve, which is stable prices for all. Now, hawks are said to be in favor of a monetary policy that very strictly controls inflation. They have a close eye on where they see threats to price stability. They're worried about the economy overheating and they watch out for any sign of inflation that they can see. And that's why they probably prefer higher interest rates and, for example, would be in favor of less asset purchases. An expert called this a tight monetary policy. So hawks are in favor of a tight monetary policy and also would like to see less of an activist role for monetary policy. So you might read something like this was a particularly hawkish moment. Doves on the other side are perceived to be in favor of a monetary policy that focus on stimulating the economy and supporting employment. They prefer lower interest rates. An expert called this more of a loose monetary policy. Okay, so you've got tight and loose. Correct. And they also think that monetary policy can play an activist, a more activist role in supporting the economy. And then watchers would look at this and say this was a particularly dovish statement or a particularly dovish discussion in this case. But I think it's very important to make that absolutely clear. It's easy to distinguish a hawk and a dove in nature. But the world of central banking is a lot more complex. And so it's much more difficult to have these stereotypical descriptions that are just a bit too simplistic. And that's also because these days monetary policy often means a complex package of different measures. Our tools are much more complex nowadays than they used to be obviously. So I guess, yeah, you don't have simply hawks and simply doves. Correct. If you ask central bankers themselves, are you a hawk or a dove? I don't think they'd be overly amused. I'll remember that one. That's because they see themselves as professionals. They look at the evidence and they will employ their own judgment to fulfill their mandate to serve the people and provide a stable currency. But Katie, there's one thing I think since we're talking about the aviary of central banking and kind of birds, I think that's the pigeon. The pigeon is a metaphor that is used for central bankers who take a position in between the hawks and the doves or those who would rather postpone the decision. OK, so we've got the hawk, the dove, the pigeon. They all want the same thing for the economy, right? They all want stable prices. It's just that they all have a slightly different way of taking decisions to get to that goal. Yeah, I think that's a fair point to say that. Although, I mean, to be specific on the pigeon, I think in central banking, there's no such thing as postponing a decision, not taking a decision still means that you keep your policy in place. And that's also a decision. So we're standing in the aviary. We've got all of these birds, hawks, doves, pigeons flying around our heads. But not that long ago, we also had another bird join the group, the owl. Let's have a quick listen of our first press conference with President Christine Lagarde back in December 2019. You know, I see exactly where you're trying to get me. But, you know, once and for all, I'm neither a dove nor a hawk. And my ambition is to be this owl that is often associated with a little bit of wisdom. Now, Gabriel, we've just heard that clip of President Lagarde. What was the context of this? Can you give us a bit of background? Well, as you said, Katie, it was the first press conference of then new President Christine Lagarde. And she answered that journalist's question and had been speculation where she stands on monetary policy. And so she described herself as an owl, precisely to escape that binary limitations that you have with the hawks and the doves. And the idea that she's someone who leads the governing council to profound and lively discussions, someone who listens very carefully and then helps to reach common decisions. And I think that collegial style of leadership that she's pursued since then has served us well. Because we've seen it with the very rapid and the strong response of our institution to the coronavirus crisis. Okay, so another animal that I came across recently is the black swan. Now, to me, that sounds like something that's quite a rare animal. I know I've never seen a black swan. What is it? And why is it a native in our wildlife park? Yes, the term black swan was actually originally coined by the ancient Greeks again. And they used it to describe an impossible event. And you said, you never saw black swan. And it's fair enough because swans are white. But actually, there are some black swans I saw once. No way. But it's just that they are extremely rare. Now, going to the metaphor, the black swan describes an event that is so improbable that even the possibility that it might occur is unknown. It's an unpredictable and unexpected event. It's a surprise. And very importantly, it's an event with potentially severe or even catastrophic consequences. If it happens, it's big. You don't see it coming and when it comes. Yeah, the theory was developed by a man called Nassim Nikolas Tali, who made the black swan famous in economics and finance. Some people say that the layman collapsed in the great financial crisis that followed in 2008. That was a black swan or the Brexit vote and that they all qualify as such events. Interestingly, these black swan events are often explained in hindsight as if they were actually predictable. Okay, so the black swans were new for me. It turns out they're quite dangerous animals. It reminds me of the swans in the park next to my house that seem to have taken over during lockdown. And if they're anything like those ones, then very dangerous and definitely better not to get close to them. Let's stay with the same animal family for a moment. I've also heard some central bankers and economists talking, especially recently, about green swans. What's behind that one? Well, the green swan takes up the metaphor, the idea of the black swan of a potentially extremely financially disruptive event. But one that stems from the impact of the climate crisis. Okay, so it's very specific. The impact is also severe and it's extreme. And there's also uncertainty what that impact will look concretely like. But unlike the black swan, it's difficult to argue that we didn't see this one coming. What makes it so dangerous is the failure to prepare for it. So the black and the green swans are the events, but they differ in the extent that you can prepare for them, essentially. Still on the theme of birds, there's another one that also pops up in central banking. It's a bit more benign than the swans, the ostrich. Now, from what I understand, they don't live too far from the black or especially the green swans, right? Yes. Indeed, because the swans are in a sense the events, whereas the ostrich is the kind of behavior that usually investors and how they react to events. And ostrich investors are those who tend to dislike and ignore information or bad financial use or the losses that they might incur. They simply ignore the risks and they pretend they don't exist. And they hope they simply go away. In a sense, we're all a bit like ostriches. Let's face it, and be honest. I mean, in fact, psychologists and behavioral economists have looked at that, big samples, studied this, how we often pay more attention to positive information than to negative information. I definitely do that with the weather. If it says it's going to rain, then I ignore it. Correct. So we all tend to downplay the stuff that we don't like to hear or see. And the scientists have also focused on our own desires, a very human thing, to maintain a certain self-image. We want to feel good about ourselves. That's fair enough. Fair enough, yeah. And as a result, we often bend our perceptions to reality just a tad in order to protect our ego. And so the ostrich metaphor basically takes up that kind of behavior. It comes from the very common but utterly false legend that ostriches would bury their heads in the sand to avoid danger. People say it's an urban legend. This one is a rural legend. It's a rural legend. Because ostriches, they are flightless birds. And so what they cannot do is build nests and trees where their eggs would be safe. So they'll leg their eggs in holes in the ground. And they occasionally need to check on those eggs, whether the temperature is right, whether they're still OK and so on. And to do that, they of course have to stick their head there and check this out. And so if you watch that, you've got the impression they're sticking their heads into the ground and trying to hide. That's where the myths come from. But if you think they're true, an ostrich in the face of danger that sticks the head into the ground wouldn't be around for a long time, right? I did read while I was researching for this episode that ostriches are the fastest birds on land. So even if they can't put their heads in the sand, they can run away from the problem very, very fast. All right, let's stick with investors and markets for a moment. And there are lots of animals in that part of the park. Two of the most prominent examples are bulls and bears. And they describe two types of investors. We've already looked at the ostrich. Now we look at the bulls and the bears. A bullish investor is said to be optimistic on stock prices and the development of the market. They tend to buy stock or hold on to stock for a longer time because they expect to sell them at a higher price later on. Bears, on the other hand, well, they're rather pessimistic and they expect prices to decline to go down. They sell their stocks or they opt for short-term investments so that they don't lose too much money. When looking at the overall market sentiment, journalists and traders often speak of a bull market or a bear market. And if you've ever been to Frankfurt, and I'm sure you've seen it, Gabriel, you might have seen the bull and bear statues outside the Frankfurt Stock Exchange in the city centre. So we know what the two animals represent, but where do the metaphors come from? Why do we talk specifically about the bull and the bear? Well, these metaphors are said to come from the way the animals attack their opponents. Bulls thrust their horns up and bears swept their paws downward. And real bulls can also be very aggressive and they can be hard-charging and they're very powerful. The bear, there's also this one story that it could actually be derived from the story about the bear-skinned salesmen. They were these middlemen and they used to be called bear-skinned jobbers. They sold the furs, the markets when the prices were high, when demand was high, but they sold them before even securing them and having them. The bear-skinned jobbers, they expected prices to drop and then to buy them cheaper from the actual hunters and, so to speak, make the money on the way. And later on these bear-skinned jobbers have simply become bears. Also this one dates back a long time. There's a man called Thomas Mortimer who wrote an economics book back in 1761 and it's called Every Men, His Own Broker. And that's why he first used the terms bear and bulls and bears. So they've been, so to speak, around for over 250 years. Well, some of these animal metaphors are actually a lot older than I expected them to be. Now, it's clear what a bull in a bear market is and we've seen that. Could you give us some examples of where we've seen them in history? Of course, what's very important when you speak about a bear market or a bull market, I mean, people can define them differently, but one thing is clear. It's not about short-term ups and downs, a few days or even a few weeks when things don't go in the same direction, but a longer-term period that you see a clear tendency emerging. So if I see a stock price going down for one day, I can't say, or we're in a bear market. No, you can't do that. But if you look at these big long periods, I think one example would be what we call the roaring 1990s, basically from 1990 until 2000s, until the dot-com bubble burst. Much more recently, we had the longest bull market ever, which lasted from 2009 till 2020. So that's a full 131 months. Wow. And resulted in stock markets growing by more than 400%. The longest bear market, on the other side, was in the US a while back from March 1937 until April 1942 and lasted 62 months. Great. Well, Gabriel, before we wrap up, there is something I like to ask all of our guests. If you had to recommend one must read or must watch about what we've talked about today, what would that be? What's your hot tip for our listeners? Katie, we started this episode today by talking about how words, images, and stories can help us better understand our complex world. We in communications in the central bank have a lot of complex things to convey. And we always on the surge for metaphors that everyone can relate to. And yet they get the cross on messages also with the nuances that are very important in central banking. So I've been thinking and inspired by the past weeks of footballing frenzy that we had in Europe. I would recommend taking a look at what is called the Maradona theory of interest rates. It's named after the late footballing genius from Argentina. And it was outlined in the speech in 2005 by the then Bank of England Governor, Mervyn King. And it goes like this. Back in 1986 during the World Cup, Diego Maradona was able to score a terrific goal, really one for the history books, against England by running 50 meters from inside his own half towards the English goal. On the way, he overcame five English defenders. Now how did you do that? Well, instead of moving up either left or right, as the English players were expecting him to do, he just ran in a straight line. Just went for it straight. And then scored a beautiful goal. Now, believe it or not, monetary policy works in a similar way. What matters is expectations. Markets react to what they expect the central bank will do, just like the English defenders expected Maradona to go left or right. So explaining that context of monetary policy, interest rates and how expectations come in is a super complex thing to explain to people. But all of us, those who watch it at the time, or those who've heard about it and watched the clip on YouTube, we can all imagine what happened on that football pitch and that kind of opens up a much better understanding of such a complex thing as just monetary policy expectations and markets. And that's the beauty of it. And in fact, there's our aspirations also in communications to make abstract and complex things accessible, relatable, and maybe even memorable. It certainly is our aspiration. And your Maradona story has also reminded me of a recent Instagram post on the ECB's Instagram account explaining how football is a lot like banking supervision. So it seems that the football analogy is not just suited to monetary policy, but also banking supervision too. Well, Gabriel, thank you so much. I've really enjoyed this episode. Thanks for being here. Thanks. Well, that brings us to the end of this episode. Do check out the show notes for further reading on this topic. You've been listening to the ECB podcast with Katie Ranger. If you like what you've heard, please subscribe and leave us a review. We'd also love to hear from you, so do share your feedback and ideas with us via social media. Until next time, thanks for listening.