Tuesday, October 25, 2005

Bernanke

Now that one of the pre-eminent monetary theorists of his generation will be chair of the Fed, we have the possibility of discovering if economic theory is at all useful. If Bernanke turns out to be a terrible Fed chair, then we will have convincing evidence that economics cannot help us understand the world. After all, macroeconomics is the branch most alien to the common man. We can all grasp the idea of self-interest; accounting identities and such are less intuitive. So if someone who understands all that stuff incredibly well isn't a good policy-maker, it will seem like running monetary policy is rather like picking stocks. If Bernanke is good, well, Popper was useful here.

Also, Bernanke will be in the almost unique position of being able to generate data for natural experiments, or at least put his own academic ideas into practice. If he were more of an academic and less of a policy-maker, he might well do stupid things on purpose just so we could get data on the impact of bad monetary policy.

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