Friday, December 31, 2010

Unexpected Insight of the Year Award

Unexpected Insight of the Year Award goes to Brad DeLong who confessed to having suffered from Greenspanism, i.e. buying into the trappings surrounding the Federal Reserve and thus falling into the belief that the Fed knows what it is doing. Wrote DeLong:
[Larry Summers] (and I) were trapped by belief in what I might as well call "Greenspanism."...Once we had concluded that the Federal Reserve had the tools and the competence to absorb financial shocks, the jaws of the trap snap shut...

But "captured" is the wrong word. "Trapped" is much better. And not trapped by the efficient market hypothesis. Trapped, instead, by confidence in modern central banking...these intellectual commitments are certainly fueled by too-close attention to and admiration for central bankers...
At the time of DeLong's post, I wrote:
Wow! I feel I have accidentally overheard the confession at St. Patrick's Cathedral of a dying man.

Since I spend a lot of time in Washington D.C., I meet a lot of economists who might be called what DeLong calls "trapped." It is not that they are not bright, most of them are. It is, as DeLong points out, that they are "fueled by too-close attention to and admiration for central bankers." I would add that the admiration goes beyond that for central bankers. It goes on to include admiration for anyone who may have a pass to the West Wing of the White House (or admiration for anyone who may know someone who may have a pass to the West Wing.)
This type of admiration, Greenspanism, if you will, blocks the mind and shrinks the balls. I have never before seen anyone who has suffered from it openly confess to the affliction, or admit that such an affliction even exists.
It should give every Washington D.C. economist, and beyond, pause to think and reflect on whether their support for some institutionalized government way of thinking may be some form of Greenspanism.

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