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Has the Federal Reserve 'bought' the economics profession?

Discussion in 'Sports and News' started by 2muchcoffeeman, Sep 9, 2009.

  1. 2muchcoffeeman

    2muchcoffeeman Active Member

    That's the question a writer for the Huffington Post tries to answer, and he makes a strong case for an affirmative answer to the question.

    http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html <blockquote>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. . . .

    Paul Krugman, in Sunday's New York Times magazine, did his own autopsy of economics, asking "How Did Economists Get It So Wrong?" Krugman concludes that "[e]conomics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system."

    So who seduced them?

    The Fed did it.</blockquote>Speaking as a former journalist (and who knows? I may be one again), there's a graf in the story that greatly troubles me:<blockquote>The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank's money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.

    "Try to publish an article critical of the Fed with an editor who works for the Fed," says Galbraith. And the journals, in turn, determine which economists get tenure and what ideas are considered respectable.</blockquote>
     
  2. cranberry

    cranberry Well-Known Member

    I have a hard time believing academia was bought but I guess it's within the realm of possibility in these times.

    I thought Krugman's analysis suggested the usually polarized camps in academia had settled into something of an uneasy truce during the Greenspan era when monetary policy was used (fairly effectively) to control the economy. Until it didn't. He suggests most (not all) economists were slow to understand that monetary policy has a lower threshold (0 percent interest) at which it becomes useless. So I tend to agree with Krugman's thought that most of academia fell asleep at the wheel and didn't wake up until they had veered sharply off the road and hit a tree.

    http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=3&ref=magazine

    Regardless, I think you'll begin to see new and more vigorous debate as a result of the economic crisis, which is usually a good thing. Krugman apparently believes behavioral economics will play a greater role going forward. It will be interesting to watch.
     
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