Fed Policy and a Pretense of Knowledge

If economics is “real science” a notion that Nassim Taleb bestselling author of the Black Swan disputes, then one might expect some consistency among economic scientists in regard to fundamental principle. The fundamental principle of capitalism is the self-correcting nature of market systems. Yet, the majority of the economics profession is not yet convinced that markets work. To me, this is analogous to saying that a majority of physicists disagree with gravity.

It is little wonder that practitioners of the dismal science have largely failed as popular champions of spontaneous order. Constructivist macroeconomists at the Federal Reserve and elsewhere continue to perpetuate the myth of discretionary fiscal and monetary stabilization policy despite an empirical record of failure documented in Friedman and Schwartz’s (1963) Monetary History of the United States. Friedman argued against discretionary stabilization policy because it presupposes accurate forecasts and economic science is not sufficiently advanced to satisfy this requirement. Mesmerized by artificial mathematical precision and what Hayek labeled a “pretense of knowledge,” a large segment of the economics profession is loath to admit that their discipline is too primitive to successfully implement discretionary stabilization policy.