October 19, 2011
The Washington Post told readers that Federal Reserve Board Chairman Ben Bernanke now says that it is appropriate for the Fed to target bubbles like the stock market bubble in the 90s or the housing bubble in the last decade which “were in hindsight dangerous bubbles.”
Actually, it was easy to see in real time that these were dangerous bubbles. Greenspan, Bernanke and other people in policy making positions simply chose to ignore the evidence. Since the Washington Post and other news outlets are covering up this failure, rather than holding these people responsible for the incredibly economic disaster that resulting from their mismanagement, we can anticipate more such failures in the future.
Economic theory predicts that people respond to incentives. There is clearly no incentive to challenge the conventional wisdom in the economics profession even when it is as wrong as it can possibly be.
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