Saturday, September 12, 2009

More on the Grim View of the Fed

. Saturday, September 12, 2009

Okay, so my last post on Grim's piece on the Fed was a tad, er, shrill. I thought (and still think) that in advancing his central argument -- that the Fed stifles discussion, debate, and dissent -- Grim did not do due diligence. For example, his piece never mentions any member of the Board of Governors or the fact that dissents at BoG meetings have been common during Bernanke's term. In fact, last year many were complaining that the Fed was too divided to send clear policy signals, and this was hampering the effectiveness of the organization.

Nor does Grim mention the ideological battles between Janet Yellen (President of the San Francisco Fed and possible future Chairperson) and William Poole (former President of the St. Louis Fed), which are well-known to any casual observer of the Fed in the 2000s. Yellen is an inflation dove, while Poole is a hawk, and their debates took place at the highest fora in the Fed and had a direct influence on policy-making. Many other debates took place under the radar, but had broad influence within and without the Fed.

Moreover, it is silly to argue that the Fed shouldn't seek the opinion of as many economists as is feasible. If the Fed didn't employ so many economists as researchers and consultants it would be much easier to argue that they had ideological blinders on. If the Fed is so blinkered, then why bother hiring so many different researchers? Why use up resources, fund research, and pay salaries of so many economists if you're just going to ignore them all dissent?

That's not to say that there aren't some cheerleaders out there; of course there are. But as Grim so ably showed, the Fed is a very large organization that hires a lot of people. What bureaucratic organization is immune from this accusation?

The Fed is the most scrutinized technocratic organization in the world, and we're going through a financial crisis that has devastated the real economy, so some existential musings are certainly appropriate. But Grim goes way beyond that, stringing together a series of one-sided quotes and weak insinuations. To what end? He wants to show that the Fed's is influence is substantial, monolithic, and pernicious. The first part is not in dispute, the second part is demonstrably false, and the third part -- if it can be shown at all -- requires an argument that would be well over Grim's head.

It is a very bad article.

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