The Fed as a Monopsony

The Federal Reserve is sometimes pejoratively called a monopoly producer of money. Now it is also being called an a monopsony (or something close to it) in the macroeconomic labor and thought market. Writing in the Huffington Post, Ryan Grim makes the case that Fed has undue influence on what macroeconomic topics get an airing in top professional outlets because (1) the Fed hires a large number of macroeconomists and visiting scholars, (2) it has its staff strategically located on the editorial boards of top money and macro journals, (3) it has many sympathetic alum strategically placed, (4) it causes non-Fed economists to be mindful of what they say so as to not shut off future opportunities with the Fed, and (5) it funds many scholarly conferences on macroeconomic issues. Here is Grim:

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed’s thrall, the economists missed it, too.

…

One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.

While Grim’s article is an interesting read, a more scholarly, even-handed critique of the Fed’s influence was done by Lawrence H. White back in 2005 for the journal Econ Journal Watch. Here is his abstract:

The Federal Reserve System is a major sponsor of monetary economics research by American economists. I provide some measures of the size of the Fed’s research program (both inputs and published outputs) and consider how the Fed’s sponsorship may directly and indirectly influence the character of academic research in monetary economics. In particular, I raise the issue of status quo bias in the Fed-sponsored research.

Like Ryan Grim, Lawrence H. White concludes that Fed does have some monopsony-like power in the macroeconomic labor and thought market. This critique makes sense, but it does not stop folks like me from doing research that questions the Fed’s policies. And if all else fails, I have this blog… oh wait, I have to get tenure first!

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