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Priceless: How The Federal Reserve Bought The Economics Profession

Bernanke And Greenspan

First Posted: 10/23/09 06:12 AM ET Updated: 05/25/11 03:00 PM ET

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.

The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after "flipping" had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that "a national severe price distortion [is] most unlikely." A year later, current Chairman Ben Bernanke said that the boom "largely reflect strong economic fundamentals."

The Fed also failed to sufficiently regulate major financial institutions, with Greenspan -- and the dominant economists -- believing that the banks would regulate themselves in their own self-interest.

Despite all this, Bernanke has been nominated for a second term by President Obama.

In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry.

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.

Three Decades of Domination

The Fed has been dominating the profession for about three decades. "For the economics profession that came out of the [second world] war, the Federal Reserve was not a very important place as far as they were concerned, and their views on monetary policy were not framed by a working relationship with the Federal Reserve. So I would date it to maybe the mid-1970s," says University of Texas economics professor -- and Fed critic -- James Galbraith. "The generation that I grew up under, which included both Milton Friedman on the right and Jim Tobin on the left, were independent of the Fed. They sent students to the Fed and they influenced the Fed, but there wasn't a culture of consulting, and it wasn't the same vast network of professional economists working there."

But by 1993, when former Fed Chairman Greenspan provided the House banking committee with a breakdown of the number of economists on contract or employed by the Fed, he reported that 189 worked for the board itself and another 171 for the various regional banks. Adding in statisticians, support staff and "officers" -- who are generally also economists -- the total number came to 730. And then there were the contracts. Over a three-year period ending in October 1994, the Fed awarded 305 contracts to 209 professors worth a total of $3 million.

Just how dominant is the Fed today?

The Federal Reserve's Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a "visiting scholarship." A Fed spokeswoman says that exact figures for the number of economists contracted with weren't available. But, she says, the Federal Reserve spent $389.2 million in 2008 on "monetary and economic policy," money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.

That's a lot of money for a relatively small number of economists. According to the American Economic Association, a total of only 487 economists list "monetary policy, central banking, and the supply of money and credit," as either their primary or secondary specialty; 310 list "money and interest rates"; and 244 list "macroeconomic policy formation [and] aspects of public finance and general policy." The National Association of Business Economists tells HuffPost that 611 of its roughly 2,400 members are part of their "Financial Roundtable," the closest way they can approximate a focus on monetary policy and central banking.

Robert Auerbach, a former investigator with the House banking committee, spent years looking into the workings of the Fed and published much of what he found in the 2008 book, "Deception
and Abuse at the Fed
". A chapter in that book, excerpted here, provided the impetus for this investigation.

Auerbach found that in 1992, roughly 968 members of the AEA designated "domestic monetary and financial theory and institutions" as their primary field, and 717 designated it as their secondary field. Combining his numbers with the current ones from the AEA and NABE, it's fair to conclude that there are something like 1,000 to 1,500 monetary economists working across the country. Add up the 220 economist jobs at the Board of Governors along with regional bank hires and contracted economists, and the Fed employs or contracts with easily 500 economists at any given time. Add in those who have previously worked for the Fed -- or who hope to one day soon -- and you've accounted for a very significant majority of the field.

Auerbach concludes that the "problems associated with the Fed's employing or contracting with large numbers of economists" arise "when these economists testify as witnesses at legislative hearings or as experts at judicial proceedings, and when they publish their research and views on Fed policies, including in Fed publications."

Gatekeepers On The Payroll

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.

The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it's just the Fed.

Being on the Fed payroll isn't just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.

Affiliations with the Fed have become the oxygen of academic life for monetary economists. "It's very important, if you are tenure track and don't have tenure, to show that you are valued by the Federal Reserve," says Jane D'Arista, a Fed critic and an economist with the Political Economy Research Institute at the University of Massachusetts, Amherst.

Robert King, editor in chief of the Journal of Monetary Economics and a visiting scholar at the Richmond Federal Reserve Bank, dismisses the notion that his journal was influenced by its Fed connections. "I think that the suggestion is a silly one, based on my own experience at least," he wrote in an e-mail. (His full response is at the bottom.)

Galbraith, a Fed critic, has seen the Fed's influence on academia first hand. He and co-authors Olivier Giovannoni and Ann Russo found that in the year before a presidential election, there is a significantly tighter monetary policy coming from the Fed if a Democrat is in office and a significantly looser policy if a Republican is in office. The effects are both statistically significant, allowing for controls, and economically important.

They submitted a paper with their findings to the Review of Economics and Statistics in 2008, but the paper was rejected. "The editor assigned to it turned out to be a fellow at the Fed and that was after I requested that it not be assigned to someone affiliated with the Fed," Galbraith says.

Publishing in top journals is, like in any discipline, the key to getting tenure. Indeed, pursuing tenure ironically requires a kind of fealty to the dominant economic ideology that is the precise opposite of the purpose of tenure, which is to protect academics who present oppositional perspectives.

And while most academic disciplines and top-tier journals are controlled by some defining paradigm, in an academic field like poetry, that situation can do no harm other than to, perhaps, a forest of trees. Economics, unfortunately, collides with reality -- as it did with the Fed's incorrect reading of the housing bubble and failure to regulate financial institutions. Neither was a matter of incompetence, but both resulted from the Fed's unchallenged assumptions about the way the market worked.

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.

Greenspan told Congress in October 2008 that he was in a state of "shocked disbelief" and that the "whole intellectual edifice" had "collapsed." House Committee on Oversight and Government Reform Chairman Henry Waxman (D-Calif.) followed up: "In other words, you found that your view of the world, your ideology, was not right, it was not working."

"Absolutely, precisely," Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

But, if the intellectual edifice has collapsed, the intellectual infrastructure remains in place. The same economists who provided Greenspan his "very considerable evidence" are still running the journals and still analyzing the world using the same models that were incapable of seeing the credit boom and the coming collapse.

Rosner, the Wall Street analyst who foresaw the crash, says that the Fed's ideological dominance of the journals hampered his attempt to warn his colleagues about what was to come. Rosner wrote a strikingly prescient paper in 2001 arguing that relaxed lending standards and other factors would lead to a boom in housing prices over the next several years, but that the growth would be highly susceptible to an economic disruption because it was fundamentally unsound.

He expanded on those ideas over the next few years, connecting the dots and concluding that the coming housing collapse would wreak havoc on the collateralized debt obligation (CDO) and mortgage backed securities (MBS) markets, which would have a ripple effect on the rest of the economy. That, of course, is exactly what happened and it took the Fed and the economics field completely by surprise.

"What you're doing is, actually, in order to get published, having to whittle down or narrow what might otherwise be oppositional or expansionary views," says Rosner. "The only way you can actually get in a journal is by subscribing to the views of one of the journals."

When Rosner was casting his paper on CDOs and MBSs about, he knew he needed an academic economist to co-author the paper for a journal to consider it. Seven economists turned him down.

"You don't believe that markets are efficient?" he says they asked, telling him the paper was "outside the bounds" of what could be published. "I would say 'Markets are efficient when there's equal access to information, but that doesn't exist,'" he recalls.

The CDO and MBS markets froze because, as the housing market crashed, buyers didn't trust that they had reliable information about them -- precisely the case Rosner had been making.

He eventually found a co-author, Joseph Mason, an associate Professor of Finance at Drexel University LeBow College of Business, a senior fellow at the Wharton School, and a visiting scholar at the Federal Deposit Insurance Corporation. But the pair could only land their papers with the conservative Hudson Institute. In February 2007, they published a paper called "How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions?" and in May posted another, "How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions."

Together, the two papers offer a better analysis of what led to the crash than the economic journals have managed to put together - and they were published by a non-PhD before the crisis.

Not As Simple As A Pay-Off

Economist Rob Johnson serves on the UN Commission of Experts on Finance and International Monetary Reform and was a top economist on the Senate banking committee under both a Democratic and Republican chairman. He says that the consulting gigs shouldn't be looked at "like it's a payoff, like money. I think it's more being one of, part of, a club -- being respected, invited to the conferences, have a hearing with the chairman, having all the prestige dimensions, as much as a paycheck."

The Fed's hiring of so many economists can be looked at in several ways, Johnson says, because the institution does, of course, need talented analysts. "You can look at it from a telescope, either direction. One, you can say well they're reaching out, they've got a big budget and what they're doing, I'd say, is canvassing as broad a range of talent," he says. "You might call that the 'healthy hypothesis.'"

The other hypothesis, he says, "is that they're essentially using taxpayer money to wrap their arms around everybody that's a critic and therefore muffle or silence the debate. And I would say that probably both dimensions are operative, in reality."

To get a mainstream take, HuffPost called monetary economists at random from the list as members of the AEA. "I think there is a pretty good number of professors of economics who want a very limited use of monetary policy and I don't think that that necessarily has a negative impact on their careers," said Ahmed Ehsan, reached at the economics department at James Madison University. "It's quite possible that if they have some new ideas, that might be attractive to the Federal Reserve."

Ehsan, reflecting on his own career and those of his students, allowed that there is, in fact, something to what the Fed critics are saying. "I don't think [the Fed has too much influence], but then my area is monetary economics and I know my own professors, who were really well known when I was at Michigan State, my adviser, he ended up at the St. Louis Fed," he recalls. "He did lots of work. He was a product of the time...so there is some evidence, but it's not an overwhelming thing."

There's definitely prestige in spending a few years at the Fed that can give a boost to an academic career, he added. "It's one of the better career moves for lots of undergraduate students. It's very competitive."

Press officers for the Federal Reserve's board of governors provided some background information for this article, but declined to make anyone available to comment on its substance.

The Fed's Intolerance For Dissent

When dissent has arisen, the Fed has dealt with it like any other institution that cherishes homogeneity.

Take the case of Alan Blinder. Though he's squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996.

Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. "Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant," says Johnson.

In closed-door meetings, Blinder did what so few do: challenged assumptions. "The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he'd come out and say, 'Well, that's not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.' And it just created a stir inside--it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was
disrupted."

It didn't sit well with Greenspan or his staff. "A lot of senior staff...were pissed off about Blinder -- how should we say? -- not playing by the customs that they were accustomed to," Johnson says.

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."

Three years after the conference, Krugman won a Nobel Prize in 2008 for his work in economic geography.

One Journal, In Detail

The Huffington Post reviewed the mastheads of the American Journal of Economics, the Journal of Economic Perspectives, Journal of Economic Literature, the American Economic Journal: Applied Economics, American Economic Journal: Economic Policy, the Journal of Political Economy and the Journal of Monetary Economics.

HuffPost interns Googled around looking for resumes and otherwise searched for Fed connections for the 190 people on those mastheads. Of the 84 that were affiliated with the Federal Reserve at one point in their careers, 21 were on the Fed payroll even as they served as gatekeepers at prominent journals.

At the Journal of Monetary Economics, every single member of the editorial board is or has been affiliated with the Fed and 14 of the 26 board members are presently on the Fed payroll.

After the top editor, King, comes senior associate editor Marianne Baxter, who has written papers for the Chicago and Minneapolis banks and was a visiting scholar at the Minneapolis bank in '84, '85, at the Richmond bank in '97, and at the board itself in '87. She was an advisor to the president of the New York bank from '02-'05. Tim Geithner, now the Treasury Secretary, became president of the New York bank in '03.

The senior associate editors: Janice C Eberly was a Fed visiting-scholar at Philadelphia ('94), Minneapolis ('97) and the board ('97). Martin Eichenbaum has written several papers for the Fed and is a consultant to the Chicago and Atlanta banks. Sergio Rebelo has written for and was previously a consultant to the board. Stephen Williamson has written for the Cleveland, Minneapolis and Richmond banks, he worked in the Minneapolis bank's research department from '85-'87, he's on the editorial board of the Federal Reserve Bank of St. Louis Review, is the co-organizer of the '09 St. Louis Federal Reserve Bank annual economic policy conference and the co-organizer of the same bank's '08 conference on Money, Credit, and Policy, and has been a visiting scholar at the Richmond bank ever since '98.

And then there are the associate editors. Klaus Adam is a visiting scholar at the San Francisco bank. Yongsung Chang is a research associate at the Cleveland bank and has been working with the Fed in one position or another since '01. Mario Crucini was a visiting scholar at the Federal Reserve Bank of New York in '08 and has been a senior fellow at the Dallas bank since that year. Huberto Ennis is a senior economist at the Federal Reserve Bank of Richmond, a position he's held since '00. Jonathan Heathcote is a senior economist at the Minneapolis bank and has been a visiting scholar three times dating back to '01.

Ricardo Lagos is a visiting scholar at the New York bank, a former senior economist for the Minneapolis bank and a visiting scholar at that bank and Cleveland's. In fact, he was a visiting scholar at both the Cleveland and New York banks in '07 and '08. Edward Nelson was the assistant vice president of the St Louis bank from '03-'09.

Esteban Rossi-Hansberg was a visiting scholar at the Philadelphia bank from '05-'09 and similarly served at the Richmond, Minneapolis and New York banks.

Pierre-Daniel Sarte is a senior economist at the Richmond bank, a position he's held since '96. Frank Schorfheide has been a visiting scholar at the Philadelphia bank since '03 and at the New York bank since '07. He's done four such stints at the Atlanta bank and scholared for the board in '03. Alexander Wolman has been a senior economist at the Richmond bank since 1989.

Here is the complete response from King, the journal's editor in chief: "I think that the suggestion is a silly one, based on my own experience at least. In a 1988 article for AEI later republished in the Federal Reserve Bank of Richmond Review, Marvin Goodfriend (then at FRB Richmond and now at Carnegie Mellon) and I argued that it was very important for the Fed to separate monetary policy decisions (setting of interest rates) and banking policy decisions (loans to banks, via the discount window and otherwise). We argued further that there was little positive case for the Fed to be involved in the latter: broadbased liquidity could always be provided by the former. We also argued that moral hazard was a cost of banking intervention.

"Ben Bernanke understands this distinction well: he and other members of the FOMC have read my perspective and sometimes use exactly this distinction between monetary and banking policies. In difficult times, Bernanke and his fellow FOMC members have chosen to involve the Fed in major financial market interventions, well beyond the traditional banking area, a position that attracts plenty of criticism and support. JME and other economics major journals would certainly publish exciting articles that fell between these two distinct perspectives: no intervention and extensive intervention. An upcoming Carnegie-Rochester conference, with its proceeding published in JME, will host a debate on 'The Future of Central Banking'.

"You may use only the entire quotation above or no quotation at all."

Auerbach, shown King's e-mail, says it's just this simple: "If you're on the Fed payroll there's a conflict of interest."

UPDATE: Economists have written in weighing in on both sides of the debate. Here are two of them.

Stephen Williamson, the Robert S. Brookings Distinguished Professor in Arts and Sciences at Washington University in St. Louis:

Since you mentioned me in your piece on the Federal Reserve System, I thought I would drop you a note, as you clearly don't understand the relationship between the Fed and some of the economists on its payroll. I have had a long relationship with the Fed, and with other central banks in the world, including the Bank of Canada. Currently I have an academic position at Washington University in St. Louis, but I am also paid as a consultant to the Federal Reserve Banks of Richmond and St. Louis. In the past, I was a full-time economist at the Bank of Canada and at the Federal Reserve Bank of Minneapolis.

As has perhaps become clearer in the last year, economics and the science of monetary policy is a complicated business, and the Fed needs all the help it can get. The Fed is perhaps surprisingly open to new ideas, and ideas that are sometimes in conflict with the views of its top people. One of the strengths of the Federal Reserve System is that the regional Federal Reserve Banks have a good deal of independence from the Board of Governors in Washington, and this creates a healthy competition in economic ideas within the system. Indeed, some very revolutionary ideas in macroeconomics came out of the intellectual environment at the Federal
Reserve Bank of Minneapolis in the 1970s and 1980s. That intellectual environment included economists who worked full-time for the Fed, and others who were paid consultants to the Fed, but with full-time academic positions. Those economists were often sharply critical of accepted Fed policy, and they certainly never seemed to suffer for it; indeed they were
rewarded.

I have never felt constrained in my interactions with Fed economists (including some Presidents of Federal Reserve Banks). They are curious, and willing to think about new ideas. I am quite willing to bite the hand that feeds me, and have often chewed away quite happily. They keep paying me, so they must be happy about the interaction too.

A former Fed economist disagreed. "I was an economist at the Fed for more than ten years and kept getting in trouble for things I'm proud of. I hear you, loud and clear," he said, asking not to be quoted by name for, well, the reasons laid out above.

Elyse Siegel, Julian Hattem, Jeff Muskus and Jenna Staul contributed to this report

Ryan Grim is the author of This Is Your Country On Drugs: The Secret History of Getting High in America

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COMMUNITY PUNDITS
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Artos 10:03 PM on 09/09/2009
I'm really not surprised by any of this. Years ago under the Clinton Administration I was witness to some of Greenspans actions and even though I'm not an economist and only have an Assoc. of Arts. things he did were just suspicious. Especially around the time just before Bush got elected. Here we were doing very well and suddenly Greenspan did something that I could only assume was designed to wreck the  Read More...
05:05 PM on 09/17/2009
Eliminate the FED and Fractional reserve banking.

Grow the money supply by sending every Citizen money every year.

It all ends up in the banks anyway, but it is fair. Instead the 12 Dealer Banks in the FED get to create money from nothing, with the FED to rescue them when they $crew up. see my profile.
04:00 AM on 09/16/2009
I believe the Fed has far too much control over what is considered mainstream economics, but I don't believe that has much to do with how many economists are on their payroll.

Seems to have more to do with things like Reagan installing Greenspan, who walked in lockstep with the greedy finance industry, creating an alignment of political, corporate, and academic power that dominated US political economy with the central goal of increasing finance profits.

The fed is far less interested in convincing keynesian economists, whether on their payroll or not, that the fed's views are correct, than in convincing lawmakers, executives, regulators etc., to do their bidding. Which ultimately under Greenspan, and to a lesser but still significant degree Bernanke, means the bidding of the finance industry.
12:50 PM on 09/15/2009
What would be interesting to read would be how (if at all) the Fed has changed under Bernanke. Widely thought to be more collegial than his predecessors, it would be revealing to discover whether or not there is more of a focus on distilling and reviewing information gleaned by the '500'
10:42 AM on 09/15/2009
considering the supposition that the Fed does like dissent (criticism) it will be interesting to see the "Feds" reaction to newly published book "End The Fed" by Ron Paul.
09:57 PM on 09/28/2009
the Fed will ignore it as fringe conspiracy theory, and so will mainstream media until/unless the public starts making some noise.
05:53 AM on 09/15/2009
As I read this article, I was increasingly intrigued by how the Fed had stolen every play in Big Pharma's thick playbook when I read, "The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it's just the Fed."

This distinction is more apparent than real. The Fed is not a government institution. Instead, the Fed is a private consortium "that involves several companies" who cynically created it as the final solution to the question of how they could exponentially expand their profits and power.

As Casey Stengel loved to say, "You could look it up."
07:28 PM on 09/13/2009
Good investigation, except for the glaring error of failing to mention the Austrian School of Economics, the Fed's biggest critics.
02:55 AM on 09/17/2009
They are critics of the Fed, but there aren't any reputable economist that adhere to the Austrian school. Particularly none alive today. What the Austrian school has are rabid crypto-anarchists who want to use an ontological ideology to further their political agenda of religious market non-intervention. The economists who were mentioned in the article who criticized the Fed had logical reasons, founded on facts and evidence. The Austrians reject monetarists due to a religious belief that all market intervention is immoral, even if that intervention was to them entirely minimal. That's not an argument, that's a premise.

That the school acknowledges such with the use of terms such as ontology and axiomatic reasoning is even more alarming. It's as if they've not yet caught up to Kant and later critiques of the synthetic a priori and Cartesian rationalist philosophy, and take von Mises' On Human Action as an unquestionable doctrine.

And to think, I managed to avoid mentioning Ayn Rand this whole time.

If you have some time, look into the Logical Positivists of the Vienna and Berlin circles and how they understood Kant's Critique of Pure Reason. Hans Reichenbach published a fairly rare book called "The Rise of Scientific Philosophy" that I think is a good summary. Then read chapter 2 of On Human Action again (if you have read it). Maybe then you'll have questions for why Mises thought the way he did.
08:59 PM on 09/28/2009
"but there aren't any reputable economist that adhere to the Austrian school"

Brilliant observation!!!! Considering this article is all about how the Fed dictates who is reputable and who is not.
08:49 AM on 09/13/2009
Kudos to Ryan Grim for his investigative reporting.

Phony economists have nowhere to hide. And it's too late for them to flip flop. One example: here Benjamin Friedman of Harvard, who incidentally has had tight connections with the Fed poses recently as the inquisitor of big finance:

http://www.ft.com/cms/s/0/2de2b29a-9271-11de-b63b-00144feabdc0.html

And here's what he concluded in May 2006 in a paper titled “Greenspan era”:

“The record of economic performance that it [Greenspan] leaves behind is surely one to be admired. Perhaps some day we shall envy it.”

Talk about sucking up to the Fed...
09:26 AM on 09/13/2009
PS: And here, you can hear Robert Schiller from Yale, credited with warning against the risk of crisis, regretting that Tim Geithner, then at the NY office of the Fed, removed him from the board, allegedly because his talk about bubbles did sit well with the official mantra:

http://www.newyorker.com/online/blogs/newsdesk/2009/05/new-yorker-summit-video-nassim-n-taleb-and-robert-shiller.html

Talk about a missed opportunity...
08:27 AM on 09/13/2009
Kudos to Ryan Grim for his investigative reporting.

Phony economists have nowhere to hide. And it's too late for them to flip flop. Here's one example: http://www.ft.com/cms/s/0/2de2b29a-9271-11de-b63b-00144feabdc0.html

The same economist (Benjamin Friedman), incidentally with Fed connections, who poses in this article as the inquisitor of big finance had concluded in May 2006, in a paper titled “Greenspan era”:

“The record of economic performance that it [Greenspan] leaves behind is surely one to be admired. Perhaps some day we shall envy it.”

Talk about sucking up to the Fed.
03:43 AM on 09/13/2009
Great work HuffPost! I was just rereading Michael Hudson's Debtor Nation: The Hijacking of America's Economy article (another of the handful of economists who predicted the financial collapse) and this quote completely applies here:

HUDSON. The reason Greenspan was put in the Federal Reserve was because he was neither brilliant nor important. I’ll give you a few anecdotes. I used to work at Chase Manhattan Bank, and far above me was Paul Volcker. In the 1970s I had to visit the White House for one reason or another, and met with a member of the Council of Economic Advisers, who said “Michael, you’ve worked with Paul Volcker, you’ve been at meetings with him, what is he like?” I said, “Well, at meetings Volcker would be the person who would say, ‘Mr. X says this and Mr. B says this,’ and he would always be able to restate everybody’s position without ever committing himself, always being the man in the middle.” And the politician said, “That’s the man we want.” Sure enough, a few weeks later, Volcker was appointed as Chairman of the Federal Reserve. ... You don’t want someone brilliant as head of the Fed. You want somebody who’s not going to surprise you, who’s just going to mutter the usual truisms. In Greenspan’s case this was the Ayn Rand free market patter that characterized his entire tenure.
03:20 PM on 09/13/2009
Suzanne,

Great comments. Middle managers are always chosen for their ability to speak out of both sides of their mouths and toe the company line at all times. In the case of the FED, the chairman is just the mouthpiece for the various shadow entities that control it (and by proxy our whole governmental system) through the IMF, BIS, etc.

One quibble I have is that there is nothing 'free market' about a system that allows unelected bureaucrats to issue credit at will to themselves and their friends and call it 'money'. Those little green coupons are nothing more than obligations of the US government to the international banking cartels.

At one time there was a free market for money. Anyone could take their gold to the US mint and have it turned into money. All money belonged to the People; the government was just an impartial arbiter of weights and measures. Here is a good analogy... My father in law loves to make homemade mayonnaise from an old French recipe, using dill, capers, etc. He decides to sell it to the public, so he goes to the Department of Weights and Measures with a jar of his mayonnaise and a label he has had printed, and he asks that the label be accredited for proper stating of volume in ounces, liters, etc. When he walks out of the office with approved label, who owns the mayonnaise? He does, of course.
03:20 PM on 09/13/2009
This was how it used to be with money. When you spent it, you were giving the seller something that you owned outright, and therefor anything you bought with it you also owned outright. On the other hand, FED notes have an invisible lien on them, and anything paid for with them also carries this lien; in other words everything paid for with FED notes is actually controlled by the holder of the lien - the FED and its parent agencies.

Check this out these resources:

http://mp3.ruleoflawradio.com/ROL/16k/ROL_2009-08-21_16k_Hr1&2.mp3
http://mp3.ruleoflawradio.com/ROL/16k/ROL_2009-08-21_16k_Hr3&4.mp3
http://mp3.ruleoflawradio.com/ROL/16k/ROL_2009-08-22_16k_After_Midnight.mp3
http://mp3.ruleoflawradio.com/ROL/16k/ROL_2009-09-03_16k.mp3
http://mp3.ruleoflawradio.com/ROL/16k/ROL_2009-09-10_16k.mp3

http://newpeopleorder.com/ (listen to the interviews!)
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HUFFPOST SUPER USER
bccmeteorites
Don't believe everything NASA says.
09:24 AM on 09/12/2009
If you think this is bad you should try to go independent. NEWSTRUST provided a short description of your article and these lines caught my attention.

"An article in The Huffington Post suggests that the problem is the increasingly close relationship between academic economists and the Federal Reserve, which is alleged to have made the professors reluctant to question what the Fed was saying. The article notes the many research contracts the Fed awards to professors and the dominance of the Fed on certain editorial boards. "One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers."

This is true of many Federal Agencies across many fields. Our experience with NASA would be comical if not for the serious nature of their misconduct. As recently as February of this year The Meteoritical Society (a supposed non-profit) refused publication of our valid research under instructions from a an editorial board tightly connected and controlled by NASA. NASA provides much of their funding in academic pursuits at the university research level and this board cannot act independently of the instructions and agenda set forth by NASA. They invest so much time and energy censoring independents they may as well institute a whole grant funding program just for that purpose. Their actions were also part retaliation for exposing scientific misconduct and fraud from the very censors they routinely unleash on their targets.

http://www.bccmeteorites.com/misconduct-planetary.html
08:06 AM on 09/12/2009
Great article, you have an exceptional grasp on this economic nightmare and your insight into the Federal Reserve Bank is invaluable. Ryan have you written any books? If not get started ASAP, we could use your insight and wisdom in a widened format. Thanks for the "invite" to the Huffington Post, I look forward to receiving more info/news from you.
07:46 AM on 09/12/2009
Great article. Now replace all occurrences of "Fed" with "IPCC"....and all occurrences of "economy" with "climate"
06:27 AM on 09/12/2009
Easily one of the best articles I've read in the past year. And as a conservative, I'm a bit surprised it comes from Huff Post. The mystery of why so many economists are just plain wrong is explained. I have been in a state of disbelief for the past 2 years as economist and TV guest alike totally missed what is happening in our country. We have mortgaged our future with piles of debt.

The solution is simple: End the Fed. For most of America's history we didn't have a central bank nor government control over interest rates and we actually did better economically. The Federal Reserve has, in conjunction with the Federal Government, created the world's biggest debt bubble ever by artificially creating credit (better known as debt). This debt has been bought up by Asia and others to hold their currencies down while they export to us all the things we want now. This is the cause of the industrial base of the US shrinking year on year. The US dollar is being levered as we speak on a hyperbolic path. The end of US Dollar reserve currency status is near. Hyperinflation will ensue after all the US dollar debt being held overseas comes home to roost.

My greatest hope is that Americans will throw off the chains of the inflationary monetary system and get back to spending what we earn.
05:04 PM on 09/10/2009
Bring back the Glass Stegal Act to promote fair competition and eradicate monopolies and too big to fail conglomerates.

Do not allow foreign owned multinationals to own too much American real estate or stock in any individual American manufacturer or corporation.

good articles 4 for slow news day: http://www.iamned.com