I stumbled upon this video of Laurence Meyer, the Co-Founder and Senior Managing Director of Macroeconomic Advisers, a mainstream economic modeling and forecasting firm. Meyer served as a member of the Board of Governors of the Federal Reserve from 1996 to 2002. Like Chairman Bernanke, Mr. Meyer received his Ph.D. in economics from MIT.
Mr. Meyer is about as mainstream an economist as they come. Having served on the Federal Reserve Board he is intimately familiar with the Fed’s economic models and the nature of discussions at policy meetings. Mr. Meyer works from the same type of economic model that Chairman Bernanke and his inner circle rely on to make policy decisions.
What becomes both obvious and frightening after watching this video (especially the last two minutes) is the incredible amount of hubris in the mainstream economics profession. Mr. Meyer is so confident in his models of the economy and his view of the world that he can’t even contemplate a scenario where he could be wrong. We hear similar viewpoints from Chairman Bernanke, but his delivery is usually more tempered.
Just this week, Chairman Bernanke was out trying to explain away the deviation in the Fed’s economic forecast with the more upbeat tone to recent economic data. In other words, the Chairman is explaining why he is right and the economic data is wrong. We wouldn’t necessarily disagree with Bernanke’s assessment of the economy, but if the Chairman is wrong today or in the future (economists have a deplorable forecasting record) Fed policy could have devastating consequences for millions of Americans.
And therein lies the problem with an activist monetary policy. Mainstream economists always think they have the economy figured out and that they are smarter than their predecessors. As Joe Kernen points out toward the end of the clip, Arthur Burns the Fed Chairman during the 1970s thought he had the economy figured out. We ended up with double digit inflation and interest rates. The Greenspan Fed thought they had the economy figured out and we ended up with a stock market bubble and a real estate bubble.
Laurence Meyer and Ben Bernanke think they have the U.S. economy figured out, and maybe they do, but it is truly terrifying how sure they are of themselves.