Scott Sumner extends his analogy of central bankers with bus drivers:
1. Bus A is a self-driving machine, fitted with a rear-mounted camera and the latest automatic steering mechanism, designed by noted Swiss engineer Johan Taylor. When the camera sees that the bus has deviated too far to the right of the road, it automatically steers the bus to the left, and vice versa.
2. Bus B is driven by Johanna Yellen, widely regarded as one of Switzerland’s best bus drivers.
3. Bus C is a complicated human/machine hybrid. It has forward looking cameras, that feed road images into a large building, in real time. About 10,000 bus drivers sit at the controls of a simulator, and steer the bus as they think is appropriate. The average of all of their steering decisions is fed back to the bus in real time, in order to adjust the steering mechanism. To motivate good steering decisions, the 10,000 bus drivers are rewarded according to whether their individual steering decisions would have led, ex post, to a smoother and safer drive than that produced by the consensus.
I doubt that my answer will make him happy.
Dismiss Bus C immediately. Consensus can be wrong. It is not only possible but likely for 10,000 bus drivers, particularly when they all went to the same driving schools, to make the same wrong choice at the same time and it’s all but certain that at some point the average of their views will be catastrophically wrong. We have had empirical evidence of that again and again and if you don’t believe it check out surveys of economists.
Bus B isn’t a lot better. Bus driver Yellen attended that same driving school. The school’s training isn’t perfect and regularly causes drivers who attended there to veer off the road under certain conditions.
Consequently, of those alternatives only Bus A is even minimally satisfactory.
I’m a big believer in the wisdom of crowds, so I’d add Bus D. It’s essentially the same as Bus C except it composed of 10,000 random adults.
Reminds of Buckley’s remark about preferring to be governed by the first 2,000 people in the Boston phone book than the 2,000 members of the Harvard faculty.
Of course it might help if the automatic steering control was actually “data driven” by that camera, and by accurate data……..
Yes, that’s a basic problem. Economic data are inherently politicized.
Too bad we haven’t perfected self-driving yet and keep crashing. At least the rear facing camera lets us know we crashed.
Steve
In the case of the bus in question it’s never been tried but we have at least one program for self-driving in hand. What keeps crashing is solution #2.
Never been tried? What about before the Fed existed?
Steve
There was no rule-based system in place before the Fed was created in 1913. There was no system.
He’s not talking about laissez-faire. Alternative #1 represents the Taylor Rule or something like it.