Ryan Grim at the Huffpost has set off a buzz by claiming that the Federal Reserve exercises undo influence over the economics profession. By his count, there are about 1500 economists specializing in monetary theory and policy, and about a third are employed or otherwise lubricated by the Fed at any one time. He cites several sources who have witnessed the corrupting influence of Fed contracts and invitations, as well as outright censorship. Fed staff and veterans dominate the editorial boards of several journals, including the Journal of Monetary Economics. Is this a conspiracy?
I think Grim’s tale relies too much on partial equilibrium analysis. A better model would incorporate all the functional relationships: how journal publication influences hiring at top graduate departments, how the curriculum in these departments molds the next generation of economists, how students self-select in their education and career choices once they know the biases of their professors, how the self-reproducing ideological bent of the profession influences the Fed, the IMF and other policy/research outfits, and how the ideological and practical demands of the finance sector influence and are influenced by academic research. You can’t pull one piece out of this puzzle and say it controls all the others.
Any good DSGE modeler would tell you this.