Here’s a story on the Federal reserve of the 70s. Stagflation. Worst episode ever.
The upshot is that some guy named Arthur Burns got called to his doom as chair of the fed at the beginning of that era. Going in he was a VERY Bernanke-esque ‘best candidate available’. He understood monetary policy. Milton Friedman was a buddy and sang his praises. He espoused cutting-edge views on the drivers of inflation and these views are held as correct thirty years later.
Then he got assimilated.
Suddenly the rhetoric changed. Suddenly HE thought it was a good idea to keep those purse strings pulled wiiiide open. Suddenly he conjured up the demons that lie in wait under the beds of inflation hawks everywhere and set them loose upon the land.
Those boogeymen were real back in those olden days. And they were worse than Voldemort and they were ARTHUR BURNS’ fault.
Except that they weren’t, of course. Burns lost his soul and free will when he assumed the mantle of great status. He is no more an author of 70s stagflation than Bubba was of the Internet bubble or Dubya of the Afganistan war. These things are bigger than the personalities ‘in charge’ who, in societies like ours, merely reflect the median view as faithfully as possible.
Sumner then nails it:
Over the last few years I’ve occasionally argued that macroeconomists as a class are mostly to blame for the global economic crisis, not bankers or regulators. Seeing what happened under Burns makes me even more convinced that we macroeconomists are to blame.
Those who criticize Bernanke would do precisely what he has ‘done’ in his place, which is to hold up a small candle of influence to the fusion reactor of policy direction. He is a high status observer and were he out in the wild, the Bern-ank’s blog would be just as exasperated as the next.
And part of it is looking the other way; part of it is this claim I make that there’s over 100 economists in the United States that think they are in the top 10 of economists, right? So they think they are in the running for Chair of the Fed or the Council of Economic Advisers or the National Economic Council, and so they hold their fire. I think we are a little bit captured.