So Much for the Experts

Many people who believe that government can solve people's problems, especially "progressives", seem to believe that if only the experts were allowed to run things, everything would be better.  During political discussions, when I've criticized certain experts (e.g. Paul Krugman), I've had counter-arguments thrown my way that consisted of "well he won a Nobel prize and wrote textbooks so he knows what he is talking about."  Even if there weren't textbook Nobel prize winners who severely disagreed with an expert like Krugman, this argument is meaningless because often the experts have little clue about what is really going on.  Anyone who has read the classic The Experts Speak (chock full of mistakes by experts) knows this.  Yesterday, we got a nice reminder of this from Richard Fisher, President and CEO of the Dallas Federal Reserve Bank:

Jan Mayen is a desolate volcanic island located about 600 miles west of Norway's North Cape. It is the home of a meteorological and communications station manned in the harshest of winters by 17 hearty members of the Norwegian Armed Forces. If you read Tom Clancy's Hunt for Red October, you would know it as "Loran-C," a NATO tracking and transmissions station. In the video game Tomb Raider: Underworld, Lara Croft visits Jan Mayen in search of Thor's Hammer, considered the most awesome of weapons in Norse mythology, capable of leveling mountains and performing the most heroic feats.

My brother Mike recently visited this station on Jan Mayen. This is the sign that greeted him.

In norsk, it reads as follows:

"Theory is when you understand everything, but nothing works."

"Practice is when everything works, but nobody understands why."

"At this station, theory and practice are united, so nothing works and nobody understands why."

My wry brother implied that this about summed it up for monetary policy. Drawing on theory and practice, the 17 members of the Federal Open Market Committee (FOMC) have been working in the harshest economic environment to harness monetary theory and lessons learned from practice to revive the economy and job creation without forsaking our commitment to maintaining price stability. But the committee's policy has yet to show evidence of working and nobody seems to quite understand why.

Yup, you got it the Federal Reserve essentially has no idea what is going on and why its policies aren't working.  Which is not very reassuring and a sign that when things do get bad when Greece defaults, there might not be much of a safety net that they can provide.  And yes, Greece is still going to default.  The market may have levitated higher on constant rumors coming out of Europe, but in the end, there is no way that so many countries will agree to bailout Greece, especially when it continues to miss it's revenue and deficit targets.  Eventually it will default and nobody knows what will happen then, and there is a possibility it could even be worse than the fall of 2008 as there are pretty much no fiscal or monetary tools left to help us out of a tailspin.  Stay nimble and stay liquid.