The great investor and writer Andy Kessler frequently points out that the failure rate among Silicon Valley start-ups is 90 percent. Every member of the economics profession would be wise to memorize the previous figure, and repeat it daily. If so, economists might come closer to understanding why they’re mystified by what they deem slow economic growth. And mystified they are. So much so that they’ve apparently given up.
According to New York Times reporter Binyamin Appelbaum, the theme that emerged from the Kansas City Fed’s Jackson Hole confab is that economists have ceased offering growth proposals. Appelbaum indicates that they’re playing defense now; floating ideas to allegedly ensure things don’t get worse. Having tried everything since 2008 (more on this in a bit), they’ve given up arguing about what they plainly don’t understand, or recognize. It almost renders the credentialed sympathetic in some weird, pathetic way.
And it’s encouraging. While the role of central banks (the Federal Reserve is the world’s #1 employer of economists) in the economy is vastly overstated either way, it’s good to see a routinely incorrect profession realize that it is nearly always incorrect. The first step to healing is recognition of the problem, or something like that.
While central bankers plainly don’t understand what drives economic growth, they need to realize that what they do has little to do with growth as is. Lest they or readers forget, central banks project their always overstated and rapidly shrinking economic influence through antiquated banks; banks arguably the least dynamic sources of credit in the world, and surely the least dynamic in the U. S. Going back to the Silicon Valley stat that begins this piece, does any sane person think banks have anything to do with the finance that drives this hotbed of innovation? This is a short way of saying that even if central bank economists actually had a clue, their doings would have little relevance to the economic sectors that actually power growth.
This post was published at Ludwig von Mises Institute on August 31, 2017.