“The transcripts that the Federal Reserve released last week of its policy makers’ 2008 meetings record in painful detail the ignorance of its officials about economic conditions during that crisis year.”

“What the transcripts do not explain is why the Fed failed at one of its most basic tasks.”

“I wrote last week that the cause was a combination of bad data, bad models and bad assumptions. But that does not explain why the Fed discounted good data, failed to build better models or persisted in its mistaken assumptions. It does not explain why other people were able to see the cliff.”

“Neil Fligstein, a sociology professor at the University of California, Berkeley, argues in a recent paper that the broader problem was cultural. The Fed increasingly is dominated by one kind of official: academic economists who lack private-sector experience. ‘They all start out analyzing everything in more or less the same way,’ he said. Moreover, Professor Fligstein and his co-authors argue that the Fed “does not just favor macroeconomists, but people who appear unlikely to take extreme positions.’ “

“The result, according to Professor Fligstein and his co-authors, is that the Fed’s discussions begin with a narrow range of views and quickly head toward consensus. In the transcripts of Fed meetings between 2000 and 2008, they wrote, ‘one is constantly struck by how cautious the nature of the discussion appears and how the give-and-take in the discussion often ends up at some middle position.’ “

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Read full New York Times Economix article here.