Economists Are (Still) Clueless
So economists are not only generally wrong, they're overly confident in their bad forecasts.
If economists were merely wrong at betting on horse races, their failure would be amusing. But central bankers have the power to create money, change interest rates, and affect our lives in multiple ways – and they don't have a clue.
Despite this, they remain perennially confident. There's no overestimating the hubris of central bankers. On 60 Minutes in December, 2010, Scott Pelley interviewed Fed Chairman Ben Bernanke and asked him whether he would be able to do the right thing at the right time. The exchange was startling (at least to us):
Pelley: Can you act quickly enough to prevent inflation from getting out of control?
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
The Revenge of the Minsky Moment
Overall, our forecast could admittedly be read as still painting a pretty benign picture: Despite all the financial turmoil, the economy avoids recession and, even with steeply higher prices for food and energy and a lower exchange value of the dollar, we achieve some modest edging-off of inflation. So I tried not to take it personally when I received a notice the other day that the Board had approved more frequent drug-testing for certain members of the senior staff, myself included. [Laughter]
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