Has the Fed bought the economics profession?

Ryan Grim of the Huffington Post says it has.

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found...

One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past...

When dissent has arisen, the Fed has dealt with it like any other institution that cherishes homogeneity. Take the case of Alan Blinder. Though he's squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996. Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. "Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant," says Johnson. In closed-door meetings, Blinder did what so few do: challenged assumptions. "The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he'd come out and say, 'Well, that's not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.' And it just created a stir inside--it was sort of like the whole pipeline of Greenspan-arriving-at-decisions wasdisrupted." It didn't sit well with Greenspan or his staff. "A lot of senior staff...were pissed off about Blinder -- how should we say? -- not playing by the customs that they were accustomed to," Johnson says.

And celebrity is no shield against Fed excommunication. Paul Krugman, in fact, has gotten rough treatment. "I've been blackballed from the Fed summer conference at Jackson Hole, which I used to be a regular at, ever since I criticized him," Krugman said of Greenspan in a 2007 interview with Pacifica Radio's Democracy Now! "Nobody really wants to cross him." An invitation to the annual conference, or some other blessing from the Fed, is a signal to the economic profession that you're a certified member of the club. Even Krugman seems a bit burned by the slight. "And two years ago," he said in 2007, "the conference was devoted to a field, new economic geography, that I invented, and I wasn't invited." Three years after the conference, Krugman won a Nobel Prize in 2008 for his work in economic geography.

The full article is worth reading. I suspect that the dominance of the Fed's worldview is more a product of groupthink than coercion. Fed economists are indeed everywhere. They are generally smart and they have access to resources - data, research assistants, co-authors and sounding boards, time for research - that most of us outside the Fed would kill for. (Really, I'd be willing to kill for it - call me.) I imagine that inside the Fed, as in any large organization, there are powerful social pressures to conform to the party line (perhaps in addition to more overt forms of pressure). As a consequence, research coming out of the Fed tends to focus on technical issues and shies away from theoretical approaches that lie outside the neoclassical or New Keynesian mainstream. There typically are serious blind spots, the Fed economists' inability to find evidence of a housing bubble in 2004-06 being front and center. Macroconomists outside the Fed want to be taken seriously by this smart and influential group of economists, and there is surely therefore a tendency to follow the party line to some extent.

I've experienced a bit of the social pressure in recent years when I've tried to peddle my theory that for the most part the Fed's failure to control inflation in the 1970s was due to the Fed's unwillingness to tighten in the face of a political environment that would not tolerate high unemployment. When I've presented this argument to economists at small institutions, the responses are usually favorable. If a current or former Fed economist is in the audience, the reception gets quite chilly. Fed people, by and large, dismiss out of hand the possibility that the Fed has ever caved in to political pressure (despite a lot of evidence straight out of transcripts from FOMC meetings that this is precisely what happened). They are more comfortable with the argument that back in the 1970s the Fed made honest mistakes due to the poor data or theoretical models they had to work with. I've always sensed that the resistance I have seen to the political explanation is an emotional, defensive reaction independent of logic and evidence.

No one's pointed a gun at my head and told me to bury my paper. But I don't have high hopes of having it published in a highly-ranked journal, in part because it pushes a point of view that does not fit the dominant worldview. (Of course, it's quite possible that the paper legitimately sucks as well, so I'm not going to view any rejection as evidence of ideological bias!)