Expertise and the Conduct of Monetary Policy

When the history of the financial crisis, stock market crash, and ensuing recession of 2007–2009 is written, the appropriate focus would be on the role that “expertise” played in almost every chapter of the story. From the expertise of the mathematicians who guided the models used by financial institutions, to the expertise of those who developed new kinds of mortgage instruments that required very low down payments, to the expertise of US policymakers who told us that new regulations to encourage more widespread homeownership would be an engine of economic growth and prosperity, the actions of those who knew better eventually littered the financial landscape with their errors. In addition to the prior list, which is hardly exhaustive, perhaps the most central set of experts in the story were those associated with the Federal Reserve System, the US central bank. The Fed rarely shies away from using its expertise to cloak its choices in a cloud of jargon and technicalities, even as its every move has significant effects across the US economy and the whole globe. The Fed's decisions to keep interest rates so low after 9/11 and to seize unprecedented powers in the wake of the recession that inevitably followed that earlier policy were both the latest examples of the history of the Fed's ever-increasing claims to expertise that have led to expanding powers and new and more damaging mistakes.