This is not a case of sometimes being too high and sometimes being too low.
They forecast very rapid growth after the recovery began because all of the demand-side variables were being thrown at the problem. Interest rates were effectively zero, the quantitative easing programs had been begun and the country was running large fiscal deficits. They neglected to take into account the supply-side drags induced by higher taxes, greatly increased regulation, and a generally antibusiness political environment.
Similarly, they underestimated the supply-side benefits of the deregulation and investment-oriented tax cuts passed under Trump. The Federal Open Markets Committee is packed with Ph.D. economists, nearly all of whom went to the same schools and believe in the same demand-side orthodoxy. Except for recently appointed Vice Chair Rich Clarida, most of the members are either not well versed in or hostile to the premise of supply-side economics.
The reality is the economy has a demand side and a supply side. The Federal Reserve Board has a decision-making process that is almost entirely skewed to the demand side. This lack of intellectual diversity has impaired the Fed’s forecasting ability.
Steve Moore has a master’s in economics from George Mason. He has spent the bulk of his career in the midst of Washington’s economic policy debates. Herman Cain was chairman of the board of the Kansas City Federal Reserve. He is obviously aware of how the Federal Reserve system operates and how monetary policy is made.
I do not necessarily agree with Moore or Cain on a lot of issues. But I am a firm believer in having a variety of views, including those I do not necessarily agree with, expressed. Diversity of thought, not credentialism, is what the board needs.
Larry Lindsey is the former director of the National Economic Council.