Noting that the Federal Reserve Bank is increasingly guided by academic economists, rather than businesspeople and bankers with practical experience, TD Ameritrade founder Joe Ricketts worries about the consequences in the Wall Street Journal:
Central banking, in other words, is now dominated by academics. And while I don’t blame them for it, academics by their nature come to decision-making with a distinctly—you guessed it—academic perspective. The shift described by Mr. Grant has had consequences. For one thing, simplicity based on age-old practice has been replaced by complexity based on econometric theory. Big Data has played an increasingly prominent role in how the Fed operates, even as the Fed’s role in the economy has deepened and widened.
Rather than enlisting business leaders and bankers to fulfill the Fed’s increasingly complex mission, the nation’s political and monetary authorities turned primarily to the world’s most brilliant economists, who can be thought of more and more as monetary scientists. “Central bankers have invited politicians to abdicate leadership authority to an inbred society of PhD academics who are infected to their core with groupthink, or as I prefer to think of it: ‘groupstink,’ ” argues former Dallas Fed analyst Danielle DiMartino Booth in a new book.
Two of the important things that practical experience will tend to teach people are to be humble about one’s ability to plan in a complicated world and to be aware of the real, human consequences of decisions. In contrast, the intellectual challenge of an academic and modeling approach is to push beyond the boundaries of practical experience. There’s certainly a place for that — an important one — but it’s in the private sector, where people invest their own money. A “central” anything ought to be overly staid and cautious.