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Monday, April 20, 2009

CAN THE FEDERAL RESERVE PURSUE EFFECTIVE MONETARY POLICIES WHILE BEING LESS INDEPENDENT, MORE TRANSPARENT, AND MORE DEMOCRATICALLY ACCOUNTABLE?

Today's Buggy Topic

The subject-title above does a decent job of capturing the topic, except for one thing: are these desirable goals for any central bank, not just the Federal Reserve, all compatible . . . or, alternatively, are their some trade-offs among them that can't be easily side-stepped?  It's the lengthy answer to this query, prompted by some facile, ideologically driven drivel in a thread at Economist's View --- a laudable economic web-site run by Professor Mark Thoma --- that prompted the evidence-driven, closely analyzed commentary by prof bug there late last night. 

A Buggy Revelation or Two

For ideologues of either the left or the right, remember, all good things go together.  Yep, no trade-offs ever between all the desirable changes that their carefully protected belief-systems lead them to embrace --- an intellectual and psychological pathology reinforced by the Internet, where the ideologues gather around one another at this or that blog-site and self-chosen gate-keepers seek to repel all those who challenge the dominant group-think pathology that infests the site.  

Not prof bug's cup of honeyed tea, these self-delusive bunco-games of the mind.  A militant moderate --- a chr0nic, buzzing type --- he knowns good-things don't all go together easily; knows, too, that we live in a highly complex, highly institutionalized country of 300 million people; knows, therefore, that all changes and reforms are heavily path-dependent; is skeptical consequently of ideologically driven criticisms and nostrums that ignore these complexities --- aggravated at economic and political blogs by group-reinforcing posts and commentaries that unfold by assertions and counter-assertions, but little else (certainly, little in the way of hard evidence); and enjoys, in the process, of taking on these ideologues and revealing the core of their smoldering orthodoxies. 

Oh, One More Thing 

A need for a comparative perspecitve --- almost always when your faced with a puzzling problem about the performance of American political or economic performance.  With few exceptions, it helps to place this problem and your analysis in a comparative cross-country perspective.  Sometimes these other democratic and industrial countries do things better than us, sometimes less well.  It all depends.  And hence all the comparative data and evidence that you'll find in the buzzy post today at Economist's View.

The methodological aim is to pin down what explains their better or worse performance compared to the equivalent institution, policy, or long-term trends in American life that you're trying to explain.   Assuming you've done this decently --- and the comparisons could be qualitative, using judgment, rather than data-driven (modeling which requires subjective judgments anyway) --- you can then determine, if you're hoping to change or improve the American performance by policy-oriented advice, whether what they're doing better abroad can be politically feasible in the US.   The meaning of the state in the United States is different from what West Europeans on the Continent or the Japanese understand it to mean . . . cultural differences, highly institutionalized as well in state-economy, state-society, and state-legal systems, play a big difference here. 

Britain, Observe Quickly, Is . . .  

 . . . more like the United States on these scores.  Even so --- largely because of a much more explicit class-structured society, where politics, economic and financial life, and culture were dominated into the current post-WWII period by a socially prestigious, differently educated upper class --- the role of central government has been more intrusive in British life for a long time compared to the situation here.   This is still partly the case, please note, despite the growth of central government in the US since 1945 and the lesser dominance of political, administrative, financial, and legal life by the graduates of prestigious "public schools" like Eton and especially Oxford and Cambridge.

Enough Said For the Moment

Click here for the long buggy analysis, which ranges widely over politically charged economic matters  with lots of supporting data and other evidence . . . plus, at times, an honest confession of uncertainty.  Note that it's post 59, though conceivably there might be a need for some bugged-out replies later on.