What the Fed has to Say About This?

An interesting article by Ryan Grym on Fed control of research. “Priceless: How The Federal Reserve Bought The Economics Profession

According to the article,

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.”

One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.

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.

It is time for a new start.

6 responses to “What the Fed has to Say About This?

  1. Surely this must increase the value proposition for private sector economists – they should be less trapped by the same web.

  2. Larry White was saying similar things back in 2005.

  3. This might — might — explain why economists seem to buy the Fed "exit plan" viability hook line and sinker. Why don't we read, every day, blog posts or articles teasing out the implications of an "exit" from current policy? The Fed gets away with equating "we have the tools" with "it will work" — and yet, no one seems to rise to challenge them.Raise interest rates on reserves? Sure. What is the relationship between the reserve interest rate and credit growth? Under what conditions of confidence? Is the function predictable, even in the presence of historical data (which doesn't exist)? What is the impact of not purchasing $1.2tr in GSE securities next year? What will happen to mortgage spreads? Can we know in advance? Using what analysis?After an unforgivable failure of insight, analysis and imagination leading up to the financial crisis, the economics profession seems determined to repeat that mistake by giving the Fed a free pass on its "exit plan".

  4. What has happened to this blog? No new posts since Sept 9.

  5. come on!! new posts please.