(Guest Post by Matthew Ladner)
It’s become increasingly difficult not to suspect that the Federal Reserve and other central banks have traded in their maestro status for a dunce cap that they are desperate to hide from the rest of the class. The former head of the Reserve Bank of India was kind enough to admit that central bankers basically don’t know what they are doing. Today this piece from Jeffery Snider- Economists are Blind to What they Don’t Know– makes an important point:
What all these have in common is more than just interest rates or TED spreads, even global depression; it is the entire idea of technocracy itself. Since before Plato, people have dreamed of a utopia where enlightened, dispassionate philosophers would govern and guide messy, often awful human existence toward and into “optimum” outcomes. It took until “economics” in the latter half of the 20th century for such hubris to take literal hold; there is an entire branch of the “science” dedicated through statistics just so to determining both “optimal outcomes” as well as the duty to “nudge” people toward them using the power of government if need be.
Economics is where technocracy was tried in widescale fashion first, and where it was thought at one time perhaps perfected. The Greenspan Fed, before the dot-com bust it needs to be pointed out, was believed by far too many the Socratic Ideal brought at long last to our world. So enthralling was the arrogance that it has been rationalized down by reality to what looks more like a cult than anything. Don’t believe market warnings, continue to believe The Fed Chair even though she finally confessed that economists can’t afford to keep assuming how little they know is enough. I am absolutely positive the next great psychological case will be written of the consistently imaginative dissonance leftover from When Policies Fail. It has already been started.