Ryan Grim of the Huffington Post (yeah, left-wing but I'm not - so what) has written a good piece on how the US Federal Reserve employs and otherwise funds so many economists that the Fed stifles debate about Fed assumptions and policy.
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too. "The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."
The tendency toward consensus and group-think is a big problem. Look at the housing bubble and the larger credit bubble. The vast bulk of professional economists did not recognize the problem. Some of those who did recognize it were not associated with either major universities or the Fed.
One can't simply dismiss this as left-wing carping at free market economists. Milton Friedman thought that the Fed's influence was not healthy.
Even the late Milton Friedman, whose monetary economic theories heavily influenced Greenspan, was concerned about the stifled nature of the debate. Friedman, in a 1993 letter to Auerbach that the author quotes in his book, argued that the Fed practice was harming objectivity: "I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results," Friedman wrote.
I'm struck by the fact that Alan Greenspan did not have an impressive set of private sector accomplishments. Timothy Geithner doesn't either. I wish more people who ascend to high positions in government first make their mark in ways totally independent of government-created status hierarchies. We need more people who are from the outside with proven records of accomplishment taking the reins of power.
|Share |||By Randall Parker at 2009 September 20 12:10 AM Economics Financial Regulation|