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A Clerisy of Clerisies

[ 14 ] January 31, 2008 |

Via Yglesias, Dean Baker has some tough words for the Washington Post and the Beltway media more generally:

Rather than acknowledge that the experts on whom they rely had badly misunderstood the problems facing the economy, the Post just acted as though nothing had changed. “Everyone agrees we need stimulus.” Isn’t that simple?

This refusal to acknowledge fallibility stems from the same sort of anti-democratic impulse displayed by the Soviet-era press. Just as the Soviet press wanted the public to trust the wisdom of the party bosses, the Post and other pillars of the elite media want the public to believe that the experts who are the insiders on the decision-making process in Washington are uniquely qualified to craft policy.

Quite right. This reminds me of the debate several months ago about the “foreign policy clerisy”, one facet of which investigated whether the foreign policy clerisy was unique or simply one of several communities of experts who essentially controlled the parameters of policy discussion. I leaned pretty heavily towards the latter position, and Baker seems to agree:

Of course this is true for all areas of public policy, not just economic policy. Does anyone who failed to recognize that invading Iraq would lead to a long and costly occupation deserve to be viewed as an expert on Middle East policy? But the Post and other elite media outlets perform a beautification process whereby even the most enormous mistakes are conveniently swept under the rug.

Misunderstanding the economy’s weakness earlier this month is trivial compared to the much more grandiose mistake of failing to recognize the $8 trillion housing bubble, or before that, a $10 trillion stock bubble. If performance mattered, then the experts who got things so hugely wrong would no longer be the ones shaping public policy. Instead, with the Washington Post style beautification process, experts can jump from policy disaster to policy disaster and never have their failures affect their standing.

If we are ever to have an open debate on economics, or any other area of public policy, we will need media that honestly discuss policy failures and that hold those in charge accountable. In the current situation, the economic disaster facing the economy was entirely preventable, but the Federal Reserve and the rest of the inside crew were either too incompetent to recognize the housing bubble or felt the short-term benefits outweighed the costs that the country would inevitably face when the bubble burst. The Post and most other major news outlets chose to hide any serious debate on the problems posed by the bubble on the way up, and they would like to prevent any discussion of this massive policy failure even in retrospect.

In a related development, Matt Duss and I are currently working on a project that investigates the origins of the foreign policy clerisy, and includes some musings about its coming collapse. We’ll keep you updated.

Comments (14)

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  1. aimai says:

    This is an incredibly important point but one that simply can’t get any traction. Reassuring the rubes that the daddies are in charge is, as far as I can see, the second most important function of the mass media after scaring us all that eating the next cupcake will be our death.
    From your mouth to g-d’s ear on the coming collapse of one or more of these clerisys but I doubt if we can ever be rid of the tyranny of dominant gasbags.
    aimai

  2. Chris says:

    I think the problem with the Federal Reserve was not incompetence, but that they have a fairly narrow mandate: keeping inflation under control. My understanding is that currently it’s not their job to manage asset price bubbles, although arguably it should be, especially after the whole dot-com thing. It seems like that should be the point of debate, whether the Fed should add to the list of things they ought to do, “prevent asset price bubbles”. Unfortunately that’s not as specific and measurable as managing inflation targets, so, it seems like this is a job for the industry regulators, not the Fed.
    On this point, the housing bubble had far less to do with the Fed and their funds rate than it did with under-regulated securitising of mortgage debt combined with the large subsidies that have been legislated for homeowners, from mortgage write-offs to the implicit government backing of Freddie and Ginny. Markets seized up because all of a sudden banks realized that they had no idea what the risk was on the debt that they had issued, not specifically because of over-lending or because the Fed kept rates too low (although I think they did, personally). When the Fed lowers short-term interest rates, it doesn’t do much to 30-year mortgage rates.
    Regardless of what you think about all this, the recent huge rates cuts seem a little nuts. It seems like the US economy just has a lot of imbalances currently and these need to work themselves out, and lowering interest rates isn’t going to help. The Bank of England faces a similar conflicting problems (slowing growth combined with the threat of inflation) and they haven’t panicked the way the US Federal Reserve seems to have.

  3. howard says:

    Chris, the issue here isn’t what the fed’s correct action should be, the issue is why the post does a 180 in such a short time span without acknowledging same.
    as for the fed’s actions, i’m torn: on the one hand, it’s clear that the fed has concluded that a little inflation beats total stagnation and freeze-up in the credit markets; on the other, the market has been under-acknowledging the threat of inflation for a while but there are signs (such as the one you noted, that long paper didn’t follow the fed’s cut) that the market is reconsidering.
    i suppose i ultimately believe the costs of simply letting the market clear are enormous, and finding a way to buffer that is probably a good thing: the fact is, the economy is bound to contract. too much capital is being written off for it not too.

  4. w/r/t the foreign policy crew don’t forget to check out
    David Frum’s risible op-ed
    een the pages of the I.Kristol-founded-rag, The National Interest.
    Shorter Frum: No one in the FPC ever pays any attention to bloggers, and it really chaps my hide that some in the FPC have begun paying attention to bloggers.
    He drags out Joe Klein and other wankers and “serious” pipples who have been the targets of blogospheric ridicule so that they can complain of unfair treatment at the hands of those nasty bloggers. The piece also possesses an ahistoricity that approaches the Goldbergian, making it an all-round fun read.
    Es verdad.

  5. Chris says:

    Chris, the issue here isn’t what the fed’s correct action should be, the issue is why the post does a 180 in such a short time span without acknowledging same.
    I dunno. To quote from the quote:
    In the current situation, the economic disaster facing the economy was entirely preventable, but the Federal Reserve and the rest of the inside crew were either too incompetent to recognize the housing bubble or felt the short-term benefits outweighed the costs that the country would inevitably face when the bubble burst.
    All I’m saying is that I’m pretty sure the Federal Reserve was quite aware of the housing bubble (they certainly were aware of the dot-com bubble, and said so), but the Fed doesn’t have the tools to do much about it. And I think there has been some debate about it in a lot of “mainstream media”.
    The current near-total lack of accountability in areas of foreign and economic policy seems to have more to do with the current occupants of the executive branch than anything else.

  6. Hogan says:

    That monetary-inflation-fighting is the sole mission of the Federal Reserve is not written into their charter; that was a decision taken by Volcker and ratified by Greenspan. If Greenspan or Bernanke had at least argued for tighter regulation of mortgage lending, even if they couldn’t apply it on their own, it would have put the housing bubble on the elite-opinion agenda as a problem that could be solved rather than left to fester.

  7. Andrew says:

    But if the Post actually criticized someone, they might lose access. And if people won’t give them quotes so they can play he said/she said, what will they report?
    Oh the horror!

  8. lemuel pitkin says:

    That monetary-inflation-fighting is the sole mission of the Federal Reserve is not written into their charter
    More than that: They are legally obliged, under Humphrey-Hawkins to pursue *both* stable prices and full employment.
    Altho, I wouldn’t belabor this point too much. For the past 15-20 years, the Fed has been the least restrictive of the major central banks, in particular *much* more willing to loosen credit in a downturn than the ECB and its predecessors. A little-noticed but central reason for whatever edge the US has had over Europe in terms of growth. There are a lot of things wrong with economic policy in the US but this isn’t one of them (for the moment.)

  9. howard says:

    chris, let me re-phrase: the key passage that brought this article to our attention at LGM – and the heart of baker’s accusation of the post being pravda – is the strange flip-flop of the editorial board with no comment.
    admittedly, this accompanies and mimics the flip-flop of beltway elite opinion, which is the secondary point.
    the question of whether the fed should have acted in any way in the face of the housing bubble takes us on to the area where, in fact, reasonable people might (and do) differ with baker, and i don’t really think that it was the essence of this posting.
    that said, i generally agree with lemuel pitkin: if you look at the fed’s day job, we’ve had decent growth with minimal inflation and very brief recessions over the past quarter century – the redistributive upward tendencies of the dominant republican governing philosophy can’t really be pinned on the fed (much as greenspan did to enable bush-ism itself).

  10. Doug says:

    Yes, but does heresy of the clerisies cause pleurisy?

  11. drip says:

    if you look at the fed’s day job, we’ve had decent growth with minimal inflation and very brief recessions over the past quarter century A statement with which I concur. You can’t blame the fed for this. I am not sure the fed deserves credit either. The result has less to do with the fed than with stable oil, few hot wars, technology induced productivity gains and the like. I know that is not howard or lp’s point, but the post concerns the clerisy being unable to point such things out. This leads to the further failure to improve reporting. At the very least they should be able to expose public officials who are so wrong. Instead, they hire them. Frum (NPR), Gerson(WaPo) and Kristol(NYT0 being only the most recent and well known examples of this phenomenon.

  12. lemuel pitkin says:

    . You can’t blame the fed for this. I am not sure the fed deserves credit either.
    The Fed absolutely deserves at least some of the credit. During the early ’90s, they cut rates much farther and faster than otehr central banks facing similar conditions. And to Alan Greenspan’s great credit (yes, give the devil his due), when unemployment fell well below the supposed “natural rate” of 6% in the later ’90s, he resisted the pressure from others on the Fed board and many in the financial world to raise rates, arguing correctly that even very low unemployment need not be inflationary.
    So he gets *some* of the credit for the only significant improvement in real wages for working Americans in the past 35 years.
    I think, in geenral, that “independent” central banks are an atrocity — effectively they turn over a core function of modern government to the financial industry. But the track record of the Fed since Volcker is not that bad.

  13. lemuel pitkin says:

    (Of course you’re right that this is irreleant to Rob’s point. The quality of economic reporting is abysmally bad. More generally, Dean Baker is right about everything.)

  14. drip says:

    I think the fed could have regulated up to its authority and perhaps improved things. I’m still not sure that even Greenspan’s use of interest rates had much of an effect when compared to technological advances, demographic changes and the like. I’m not sure enough to challange your points and I’m far to lazy to do any work right now.
    But as to Rob’s point, its not really irrelevant that we can carry on a conversation of sorts that is based upon something other than what some unnamed government hack told some tape recorder attached to an employee of The WaPo. I take positions to learn something. And I do learn things. The current approach of your newspaper or TV show doesn’t teach me anything. So I think our discussion proves Baker’s point as well as Rob’s.

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