[OPE] The role of the individual in history: why did Frederic Mishkin quit the Fed?

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Sun Jun 29 2008 - 04:33:50 EDT

Well you obviously cannot just join the Fed and then leave rather quickly "at a whim" without stating any reason. These are highly responsible, longterm appointments, for which you need impeccable credentials, broad support and personal commitment. 

What is spectacular to my way of thinking is that Mr Mishkin was allowed to leave rather abruptly without stating any explicit reason, officially because he was to return to teaching class. This must have been a negotiated exit.  It is quite likely that an incompatibility of views (possibly causing stress) made him unsuited to the position, and forced his resignation, but this raises the question of what exactly the sticking points really were - most likely it had something to do with a conflict between his financial principles or vision, and political viability. 

Another possibility is that "dry" Mr Mishkin was simply unable to recruit the people that he wanted to recruit, in a rapidly changing political scene, in other words that he has in salient respects the wrong financial ideology now. Mr Mishkin's personal portfolio was to supervise the economic research divisions of the central bank, "trying to attract and retain top-flight economists who often receive lucrative offers from universities and the private sector. (...) The potential talent drain comes as the Fed deals with difficult challenges in all the major areas it oversees. The economy is slumping and inflation is high, the banking system remains troubled and there is serious consideration underway about changing the regulation of financial institutions." http://www.washingtonpost.com/wp-dyn/content/article/2008/05/28/AR2008052803154.html

 Mr Mishkin frankly stated that "there remains, and will likely always remain, elements of art in the conduct of monetary policy: in other words, substantial judgment will always be needed to achieve desirable outcomes on both the inflation and employment fronts." http://ideas.repec.org/p/nbr/nberwo/13566.html  But in art and judgement, there is of course that element of credibility. 

"At a conference on April 20 at the Levy Economic Institute of Bard College, Fed Governor Ric Mishkin delivered an appraisal. (...) Inflation remains, Mishkin averred, always and everywhere a monetary phenomenon, even though the impact of policy cannot actually be measured by any known indicator, whether money growth or interest rates. It is therefore an ever-present threat." http://www.guardian.co.uk/commentisfree/2007/apr/30/fedintheheadlights

Point is people cannot even agree on the exact causal sequence behind inflation nowadays, and explicate that theoretically, and that leaves a kind of empiricist policy response - all then depends on how good that empiricism is.



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