Sunday, March 2, 2014

A Transparency Paradox At The Fed

In musing on the recently released 2008 transcripts from Federal Reserve meetings, Brad De Long ends up suggesting that maybe having a collegial Chair like Ben Bernanke may not be such a good idea.  He notes that while Bernanke was a deep student of what happened in the Great Depression to  the banking and finance systems, he seemed unable to use this knowledge in dealing with that bizarre and silly arguments being made by various people in the FOMC meetings at the time that inflation was a much more serious threat than financial breakdown and deep recession.  Brad ends by invoking the more secretive past when FOMC participants (which includes all the Fed bank presidents, not just those who formally vote) said what they had to say without there being any later reporting, or only minimally such, and the Chair would then go into privacy to decide what to do and did it, with the rest keeping their mouths shut, including publicly (Brad did not add that last, but it is implicit).  He suggests that if this model were used, BB would have been able to use his deep knowledge of the GD to overrule the rantings of the anti-inflation hysterics and done the wise thing.

Aside from whether or not the wise thing was done or not (certainly looks unwise in retrospect), I am not sure that going more secret would help here.  Indeed, it is only because we now have access to these transcripts that we understand fully how silly these folks were.  Some of them are still in place and shooting off their mouths quite prolifically, with Richard Fisher of the Dallas Fed coming particularly to mind, although Plosser has been pretty vocal recently as well.  If they are not duly embarrassed by this revelation of their past wrongheadedness, they certainly should be.  The paradox remains that eventual revelation of stupidity may be necessary to keep people in line.  It is not clear that returning to complete secrecy would overcome stupidity.  It might just protect it and encourage it.

Barkley Rosser

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