This dispute over the next Fed chair is hilarious. (Thank goodness our system doesn’t place one person in charge of wheat production or computer output. It’s only that little aspect of our economy–the MONEY–that is in the hands of one group of well-connected technocrats.)
I’ve already pointed out one guy who heaps praise on Janet Yellen for thinking we might be in a recession, when it had already started (by the official NBER dating).
Now here’s a new example (HT2 DeLong). James Hamilton writes: “At the outset of the crisis, however, Ms Yellen was also one of the people who saw most clearly the magnitude of the problems facing the economy…. Her speech to the National Association for Business Economics in 2007, when reread today, strikes the reader as amazingly prescient.”
OK, it’s not hard to google that speech. Yes, she did a good job explaining the financial crisis that was already underway. She did indeed point out that the downturn in the subprime market–again, which was already occurring before everyone’s eyes–was being amplified because of derivatives that, in retrospect, the ratings agencies and other institutions hadn’t fully understood. So this was good explanation on her part, but not prediction.
When it came to her assessing prospects for the future, here is what she said in that speech (from September 2007):
While I do think that the present financial situation has added appreciably to the downside risks to economic activity, we should remember that conditions can change quickly for better or for worse—especially in financial markets—so it’s hard right now to speak with a great deal of confidence about future economic developments. It’s also important to maintain a sense of perspective: past experience does show that financial turbulence can be resolved more quickly than seems likely when we’re in the middle of it. Moreover, the effects of these disruptions can turn out to be surprisingly small. A good example is the aftermath of the Russian debt default in 1998. Many forecasters predicted a sharp economic slowdown as a result; but instead, growth turned out to be robust.
Wow! Give that lady a sandwich board! Is the moniker “Dr. Doom” already taken, with over-the-top warnings like that?!
(For people who were decidedly more concerned, try my article from October 1, 2007, Mark Thornton’s truly prescient article from back in 2004, and of course Peter Schiff’s commentary in 2006 on CNBC. Also, I will happily admit that Nouriel Roubini “called the crisis” as well, so I’m not saying this is purely an Austrian thing. What I am saying is that the Yellen boosters are hilarious in their standards for praise. Yes, compared to Ben Bernanke, she was Nostradamus, but that’s not saying much.)