David R. Henderson  

The Fed's Hold on Economists

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And celebrity is no shield against Fed excommunication. Paul Krugman, in fact, has gotten rough treatment. "I've been blackballed from the Fed summer conference at Jackson Hole, which I used to be a regular at, ever since I criticized him," Krugman said of Greenspan in a 2007 interview with Pacifica Radio's Democracy Now! "Nobody really wants to cross him."
An invitation to the annual conference, or some other blessing from the Fed, is a signal to the economic profession that you're a certified member of the club. Even Krugman seems a bit burned by the slight. "And two years ago," he said in 2007, "the conference was devoted to a field, new economic geography, that I invented, and I wasn't invited."

This is from a fairly detailed Huffington Post article on the huge potential influence the Federal Reserve System can have (is having?) on the bounds of discussion about Fed policy.

Here's a paragraph about Milton Friedman:

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.

My former colleague from University of Rochester days, Robert King, is quoted as saying that the idea that the Fed influences thinking about Fed policy through its subsidization of hundreds of economists is "silly." But we economists are trained to think about incentives. Why wouldn't incentives apply here? There is one way the Fed could put some of these fears to rest: invite critics who would like to end the Fed to their next Jackson Hole meeting: George Selgin, Lawrence H. White, and Jeffrey Hummel.

Hat tip to Lew Rockwell.


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CATEGORIES: Monetary Policy



COMMENTS (4 to date)
mark t writes:

Maybe they just figure that they already know everything Krugman has to say given that he says it publicly half a dozen times a week.

No one proves "less is more" better than Paul Krugman, although Simon Johnson is starting to come close. I am starting to get the feeling they named "Simon Says" after him.

Yancey Ward writes:

Perhaps the Fed thinks some economists are the "prisoners of irrationality".

Yancey Ward writes:

And one should be fascinated to see who "Chairman Krugman" would invite, and who he would shun.

I've been to a few regional Feds, but never to Jackson Hole, so thanks for the nomination!

More seriously, in a 2005 Econ Journal Watch article I raised the same issue, that Fed research funding may create a pro-Fed bias among monetary economists. The article is here:
http://tinyurl.com/lq27fg

I quote a 1993 interview in which Friedman is even clearer about the danger of the Fed's "monopony power" in the market for monetary economics. Robert King and Stephen Williamson, as quoted by HuffPost, are right that some of the regional Feds' consultants do criticize the Fed on some margins. Not so much the Board's consultants. Almost none from either group will even entertain the idea of a world without the Fed.

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