Why the Fed is as bad as it is

Mark A. Calabria explains:
"... The law also requires that the president’s choice of board members “have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.”
Interestingly enough, the Federal Reserve Act makes no specific mention of adequate representation for academia. With Diamond’s appointment, a majority of the governors will be former academics. At best only one governor, Virginia banker Elizabeth Duke, has ever been in the position of having to make a payroll.
The current board lacks any representation at all for “agricultural, industrial, and commercial interests.” We have gotten to the point where the Fed Board is entirely composed of bankers and left-leaning academics. This isn’t a board that Carter Glass, who wrote the 1913 Federal Reserve Act as chairman of the House Committee on Banking and Currency, would even recognize.
Not Science
There is an argument for having an academic, or at most two, sit on the Board. After all, there is a considerable amount of scholarly work on monetary theory. There also is considerable disagreement among monetary scholars. And in spite of all the self-congratulations that academics were giving one another prior to the financial crisis, it is now obvious that monetary economics is far from a reliable set of scientific guidelines.
What is sorely needed at the Fed is the perspective of individuals who have actually worked in the real world. As someone with a doctorate in economics, it pains me to say it, but the last thing the Fed needs is another Ph.D. in economics. The central bank has a staff of thousands of Ph.D.s.
It is hard to make the case that the shift toward packing the Fed board with economists, orchestrated by Walter Heller during his time as chairman of Kennedy’s Council of Economic Advisors, has improved monetary policy. In fact, we largely had price stability in the days when the Fed board lacked academics.
If anything, this era of a “scientific” Fed has been characterized by rampant inflation. That shouldn’t be surprising since it was academics who came up with the notion that you can debase your way to prosperity..."
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