Federal Reserve Policy Makers Have An Incestuous Intellectual Relationship With Each Other.
This article, “A Bold Dissenter At The Fed, Hoping His Doubts Are Wrong”, by Binyamin Applebaum in The NY Times, is an example of , what Thomas Sowell calls, “credentialed ignorance”. He is being rather nice because I would call it an example of intellectual inbreeding. These Federal Reserve policy makers have earned their economic credentials from some of the “best” Universities, and we should stand in awe of them. Unfortunately I don’t give my respect to people with “status” that easily. I think respect is something that is earned, and just because they have a particular position or status in the political or intellectual world, doesn’t mean they should get my respect. What I have observed is that these people live in a continual feed back loop. They all think pretty much the same way because they were taught by professors who all think the same way. They are hired to work for people in Government who think the same way. They are very rarely challenged to think outside of their small tunnel of knowledge protecting them from their mountain of ignorance that would crash down on them if the tunnel wasn’t there.
Here are a few quotes from the article.
“But for the last several years, Mr. Lacker, president of the Federal Reserve Bank of Richmond, has warned repeatedly that the central bank’s extraordinary efforts to stimulate growth are ineffective and inappropriate and, worst of all, that the Fed is undermining its hard-won ability to control inflation.”
Increasing the money supply is the definition of inflation. Rising prices aren’t inflation, rising prices are the result of inflation. If by “control inflation” he means, control how much the policy makers will inflate the supply of money, than he is making a true statement. They control how much money they counterfeit and inject into the economy, but it seems to me that they come across as the soldier, out on the front line, ready to protect us from inflation when it rears its ugly head. It’s as if they don’t understand that it was their previous policy of money injection, that is the inflation they are so eagerly trying to save us from. Here’s an idea, don’t create inflation, then we wouldn’t need protection from something that wouldn’t have existed in the first place. Read previous post, Government Intervention and its Consequences.
“Last year, Mr. Lacker cast the sole dissenting vote at each of the eight meetings of the Fed’s policy-making committee, only the third time in history a Fed official dissented so regularly.”
“It’s only the third time in history a Fed official dissented so regularly.” Dissent rarely happens? Isn’t that the definition of intellectual inbreeding?
“We’re at the limits of our understanding of how monetary policy affects the economy,” Mr. Lacker said in a recent interview in his office atop the bank’s skyscraper here. “Sometimes when you test the limits you find out where the limits are by breaking through and going too far.”
Mr Lacker isn’t dissenting on the policy, he is dissenting on the degree of the policy. He thinks the policy has been pushed too far, not that it’s the wrong policy.
“That sense of caution is deeply frustrating to proponents of the Fed’s recent efforts. The economists Christina D. Romer and David H. Romer wrote in a paper published last month that such pessimism about the power of monetary policy is “the most dangerous idea in Federal Reserve history.”
The monetary policy isn’t the most dangerous idea in Fed history, it is the “pessimism about the power” of monetary policy that is the most dangerous idea in Fed history. It’s not the reality of this inflationary policy that is dangerous to the economy and should be analysed for credibility, it is the negative perception about the power of the inflationary policy that is dangerous to the Fed’s ability to create abundance in a world ruled by scarcity. The Fed policy makers are caught in their Keynesian feed back loop. They would never consider that maybe just maybe The Austrian Business Cycle Theory might have some answers for the Groundhog Day movie they have the economy stuck in.
Inbreeding doesn’t produce strength it produces weakness. The Fed’s policy makers incestuous intellectual relationship with each other produces thinking that is at the shallow end of the intellectual gene pool.