Category Archives: Economics

Monetary Economists as Policymakers at the Federal Reserve

Several articles in recent years have claimed that more diversity in the sense of fewer economists on the Board of Governors and the Federal Open Market Committee (FOMC) would be a good thing (Fox “How Economics PhDs took over the federal reserve”; Zumbrum “Fed draws on academia, Goldman for recent appointees”; Calabria “Yes Fed has a diversity problem”; Ricketts “The Fed could use less book learning and more street smarts”). This is of some importance. There currently are three vacancies out of seven positions on the Board. One will be filled by the Vice Chairman for Bank Supervision. Several of the twelve bank presidents have turned over in the last few years and more may well turn over in the next few years.

This clamor seems to having an effect or at least reflects an opinion held by Reserve Banks’ boards of directors. The number of Ph.D. economists heading Federal Reserve Banks has fallen in recent years. Three presidents who were professional monetary economists and took strong stands have left, Naryana Kocherlakota, Charles Plosser and Jeffrey Lacker. The first two have been replaced by non-economists and the latter may well be also.

Positions at the Board are different than Reserve Bank presidents. Some positions at the Board are allocated to community bankers or bank supervision (Calabria 2016). The number of professional monetary economists who are community bankers is small and there is no reason to think that such a community banker would know more about monetary policy than other community bankers. The most important qualifications of the Vice Chairman for Bank Supervision concern knowledge about regulation (Davidson and Tracy 2017). There are qualifications for Board members based on geographic distribution that should be taken seriously (Calabria 2016).

These assorted criteria do not apply to Reserve Bank presidents. Furthermore, the operational work at Reserve Banks of clearing checks has disappeared and Reserve Bank’s most important roles concern monetary policy and supervision and regulation. Supervision and regulation at Reserve Banks is a Board function delegated by the Board to Reserve Banks. In the end, the Board is in charge of supervision and regulation.

If there is a reason to have Reserve Banks, monetary policy is it. Reserve Bank presidents have their own economics staff to brief them, a luxury that members of the Board of Governors do not have. Some of the Reserve Bank presidents who are economists have been quite effective at raising issues about monetary policy such as the desirability of the Federal Reserve’s holdings of mortage-backed securities.

Nonetheless, some think monetary policy would be better if fewer Presidents of Reserve Banks were economists. Would it?

There are two aspects of being a policymaker at the FOMC. Monetary economists have some expertise at one and substantial expertise concerning the other.

The FOMC sets the specific goals of monetary policy. The general goals are set by law but the specific goals in terms of inflation and real economic activity are determined by the FOMC. (I think it would be better if specific goals were set by Congress and the Administration but they are not.) Monetary economists have some expertise at determining the goals because they have thought about them more than most people, but staff assisting presidents provide this knowledge to some extent.

The FOMC’s other task is to use monetary policy tools to produce the goals. Whether or not members of the FOMC are economists, economists brief presidents of Federal Reserve Banks before FOMC meetings and monetary economists have particular expertise concerning these issues.

It takes serious economic analysis to understand how monetary policy worked even before the financial crisis. That is more true today.

There is not a consensus among monetary economists about how monetary policy works in the context of current policies such as interest on excess reserves and Quantitative Easing. (Or for that matter, even what the effects of Quantitative Easing are.) A Principles of Economics course is not sufficient to have the economics background to reach an informed judgement about how monetary policy works today and why alternatives are in error. An undergraduate economics degree twenty or thirty years ago is of no more use.

While it is possible for an economic advisor to teach a non-economist enough to understand the issues, it is difficult to imagine a policymaker ignoring the judgement of the economists who brief him or her. Some non-economists have been involved enough in monetary policy issues to have strong opinions before they are appointed. (Quarles is an example of someone who is being considered and has at least one strong opinion about monetary policy (Davidson and Tracy 2017).) Many if not almost all have not.

Economic advisors provide informed analyses and the FOMC meetings are informed discussion of the economy and monetary economics. Some policymakers are comfortable with briefings that reflect different opinions. Some are not. The judgements of the economists providing the briefing will play an important role in the choices made by a president, whether there is one point of view or more than one.

The economists briefing the President will play a far larger role if a President is not a monetary economist. The policymaker’s policy preferences might be different than the staff’s preferences on occasion but even these differences are unlikely to be important.

The argument is to appoint more presidents at Federal Reserve Banks who have no expertise in monetary economics and will be on the FOMC. Such appointments are unlikely to increase the level of discourse or the soundness of decisions at the FOMC. If such appointments have any effect, they most likely will enhance the importance of views held by the Reserve Banks’ economics staffs.


Calabria, Mark. 2016. “Yes, the Fed Has a Diversity Problem.” Cato at Liberty. June 23, at

Davidson, Kate, and Ryan Tracy. 2017. “Expected Fed Pick on Collision Course with Current Members on Rates.” Wall Street Journal, April 17, at

Fox, Justin. 2014. “How Economics Ph.D.s Took Over the Federal Reserve.” Harvard Business Review, February 3, at

Ricketts, Joe. 2017. “The Fed Could Use Less Book Learning and More Street Smarts.” Wall Street Journal. April 10, at

Zumbrun, Josh. 2015. “Fed Draws on Academia, Goldman for Recent Appointees.” Wall Street Journal, November 10, at

An economist’s encounter with contemporary theologians

I went to a Lumen Christi conference last week (may 19-20), a meeting mainly of economists and theologians. The general topic was Catholic social thought and the specific topic was the the environment. At breakfast, I was sitting at a table with three theologians. Somehow it went all wrong and I don’t understand it even after thinking it over.

I mentioned that I had been at the Federal Reserve Bank of Atlanta and had left partly because of dissatisfaction with the increases in regulation after the Financial Crisis of 2007-2008. It seemed that they immediately assumed that I thought there should be no regulation of banks or financial markets.

One of the theologians gave a talk later that day at which he said that people should live in smaller, more densely situated homes, ride bikes instead of drive cars, and in general have a standard of living similar to what they had in the 1950s. He mentioned in particular that he thinks it is a waste to have so many resources devoted to improving phones, for example from the iPhone 5 to iPhone 6. He thinks a house of 1500 square feet should be more than adequate for people and decried McMansions of 3000 square feet. (In Atlanta, it takes more like 5 or 6 thousand square feet to get that barb.)

Apparently he didn’t really mean it about the 1950s lifestyle.

At his session, I brought up the comment about a 1950s lifestyle. I used the enormous advances in medical care for heart disease and the general increase in life expectancy of older people as an example of dramatic improvement since the 1950s. I asked him who should decide whether such research is important. He merely replied that it is obvious that medical research is important while some other research (on phones I am sure) is unimportant.

He did not understand that I was asking how his preferences about research would be implemented. That problem is harder if, as I thought, some research would be fine and other research not.

To me as an economist, “who decides” means whose preferences get implemented and how. Some people might agree that some research is more important than other research in some sense. I was not merely asking if some people could agree.

He most likely does not know that those advances are related. Digital imaging is incredibly important in modern medicine including treatment of heart attacks and preventive medicine. My mother-in-law’s pacemaker has digital storage of its activity that is uploaded to the doctor once a month.

I found all of this unsettling in an odd way. One of the theologians commented later about me that “It takes all kinds.” The complete inability to find any way to discuss things despite, at least at the start, some good will is a shame.