I don’t agree with Smith and Kimball in their latest attempt to derive meaning out of the recent research shakeup at the Minneapolis Fed, arriving at the conclusion that it must have been those Freshwater people who are wrong about everything – EMH, Rational Expectations, and economic freedom, just to name a few, without so much as a shred of evidence. One can count on someone like me writing a piece that consists of nearly all conjecture – but economics professors? Come on.
From my point of view the headline inflation targeting advocates, any inflation anywhere is evil, the be all end all of monetary policy is to sqeeze every ounce of inflation out the the economy regardless of the financial world imploding are the ones responsible for the disaster. And it wasn’t just Freshwater types, it was nearly everyone’s opinion that the tighter monetary policy gets, the better.
There has been so much very expensive snake oil floating around regarding the crisis, like bubble fear mongering, macroprudential hogwash, the inflation boogieman, Fed credibility is so much more important than anything else on the planet – even more important than the people who were robbed of self-sufficiency- and government can spend our way to prosperity; all of it trying to convince the public how tight money is like the Emperor’s new clothes that there is no real need to pile any more on. “Don’t want to let that inflation genie out of the bottle,” they said as unemployment skyrocketed to over 10%, leaving me to wonder if they got their PhD’s out of a grab bag at a carnival.
In reading much of the intellectual work behind the disaster, it was obvious to me that the cause of financial crisis and high unemployment was not lost on those who should have known the cause; and they didn’t get their PhD’s out of the grab bag after all. They were simply not forthcoming with the particulars and passed the buck.
I am voluntarily putting myself in the position to play some defense, in principle, because I believe they thought they were right and acted upon it only to find out otherwise. Being that wrong is forgivable – it’s human. It’s what one does after the discovery of being wrong that matters. Is it covered up or is it admitted and corrected? And excuse me for saying so, but I am positive that many of the present and former FOMC officials who were “serving” at the time of the crisis simply ran out of falsehoods over the last handful of years. The meaning of deflation hasn’t changed since at least 250 years ago. Someone, somewhere (a lot of someones in my opinion) knew what happened, knew it was wrong and did nothing, or worse.
It’s too late for the people fired by Kocherlakota to do the right thing, but it isn’t too late for Smith and Kimball. And I suggest that trying to turn the matter into some kind of political thing to score points with by suggesting that the entire body of people with whom they disagree are wrong about everything is not the right thing. I certainly have no intention of jumping from the frying pan into the fire, from one macroeconomic farce to another. Haven’t we had enough?
HT: Travis V