Home > Uncategorized > The Fed’s corruption of the economics profession

The Fed’s corruption of the economics profession

from Edward Fullbrook

Asad Zaman has called my attention to a long article in the Huffington Post that initially appeared six years ago, but is worth rereading today as a reminder of the task faced by those desiring to turn economics into a more honourable pursuit.  Here are few passages from the article.

Priceless: How The Federal Reserve Bought The Economics Profession

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.

…………..

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 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.

…………..

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,

…………..

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,

…………..

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

…………..

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 . . . “The only way you can actually get in a journal is by subscribing to the views of one of the journals.”

…………..

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.

Read the whole article here

  1. Paul Davidson
    November 1, 2015 at 4:26 pm

    As a monetary economist –one of the five critics of Milton Friedman involved in the University of Chicago Press book entitled MILTON FRIEDMAN’S MONETARY FRAMEWORK: A DEBATE WITH HIS CRITICS— I have never been approached by the Fed to attend any of its conferences, meetings, or even to consult with them.

    I wonder why? Do you?

  2. BC
    November 1, 2015 at 9:38 pm

    The Fed’s principal function is to run political cover for the TBTF/TBTE banks’ (its owners’) license to steal in perpetuity via the increasing deindustrialization and financialization of the US economy to the point that one might describe the system as a kind of rentier-socialist corporate-state.

    As such, the stock market has become a kind of rentier-socialist, not-for-profit, gov’t-sponsored, non-productive/parasitic trust/slush fund for the top 0.001-1% and mutual, hedge, and pension funds.

    The Fed’s articulated mandates of full employment and “price stability” (who are they kidding?) are an imperial ministerial sophist ruse intended to deflect attention and scrutiny from the values, objectives, actions, and overwhelmingly disproportionate financial, economic, and political power of the Fed’s owners, the TBTE banks, and the top 0.001% banks’ owners.

    That the overwhelming majority of business and academic eCONomists and financial media pundits and influentials cannot plainly describe the situation as it is or risk losing their credibility and livelihood is clear evidence of the political power the Fed has conferred on the institution by the TBTE banks and their owners to protect the interests, wealth, and power of the latter.

    The principal interests of the top 0.001-1% owners of the TBTE banks and the Fed ARE NOT the interests of the rest of the society.

    The Fed perpetuates a colossal deceit in enabling and protecting the private int’l banking syndicate, the owners of which own virtually everything of economic value via monopoly control of the creation of private debt-money and the associated rentier claims, including gov’ts, the electoral process, academe, and mass media.

    • Paul Schächterle
      November 4, 2015 at 10:37 am

      Quote: “[…] that one might describe the system as a kind of rentier-socialist corporate-state.”

      IMHO “rentier-socialist” is a propaganda term coined by exactly those capitalists and right-wingers who fight socialist political ideas to defend their rule over the economy and the state that guarantees their property and sets rules friendly to their wealth.

  3. November 2, 2015 at 3:50 am

    Economists could not or would not create a science. So what did they create? A cult.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s