WASHINGTON — As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.
The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was “rising through the roof.”
But the officials, meeting every six weeks to discuss the health of the nation’s economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast.
“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006.
Some officials, including Susan Bies, a Fed governor, suggested that a housing downturn actually could bolster the economy by redirecting money to other kinds of investments.
And there was general acclaim for Alan Greenspan, who stepped down as chairman at the beginning of the year, for presiding over one of the longest economic expansions in the nation’s history. Mr. Geithner suggested that Mr. Greenspan’s greatness still was not fully appreciated, an opinion now held by a much smaller number of people.
Meanwhile, by the end of 2006, the economy already was shrinking by at least one important measure, total income. And by the end of the next year, the Fed had started its desperate struggle to prevent the collapse of the financial system and to avert the onset of what could have been the nation’s first full-fledged depression in about 70 years.
The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation’s pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.
“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”
“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.”
These morons have a deep, abiding and arrogant confidence in themselves and their economic models, only it turned out their models were WRONG and they didn't know what the hell they were doing.
And yet these people are still in power, still running things, still, as Cunning Realist noted, "failing upward."
What's worse, they're now bringing their economic models - you know, the ones they were certain were absolutely correct in gauging the economy in 2006 but turned out to be horribly, horribly flawed - to public education by forcing value-added measurements of teachers using student test scores.
We already know that these value-added models have huge margins of error and wide swings in stability, but nonetheless the VERY SERIOUS PEOPLE in this country - from Obama to Cuomo to Bloomberg to Gates and the rest of the corporate criminal class - are promoting these models as absolutely essential for improving public education.
Never mind the margin of error.
Never mind the wide swings in stability.
Never mind that we'll have to add new standardized tests to every grade in every subject to pull this off.
Never mind that tying teacher jobs to these scores means the only thing kids will be doing in schools is either prepping for the tests or taking the tests.
Never mind that the algorithm they're using to measure teachers is so complex NASA scientists have trouble explaining it.
Never mind that the one state already doing this kind of system has discovered it's an absolute mess.
You see, this is SCIENCE they're using in their value-added models and they're going to be able to tell who's a good teacher and who's a bad teacher using these models just the way they can predict future inflation or unemployment rates.
And let's face it, who doesn't trust these guys when they're predicting future inflation and unemployment rates?
Oh, right - they were wrong about that.
Oh, well - don't worry, they're going to get this right.
How is it our society continues to listen to economists who are WRONG about almost EVERYTHING, who have DESTROYED people's lives and life savings with the bad calls they have made on the economy in the past and are now are telling us to trust the education and care of children to them through the value-added models they plan to use on teachers?
This is EXACTLY what Cuomo , Obama and Bloomberg are doing by promoting a test score-based evaluation system using a value-added model as the major measure of the evaluation - trust the economists to tell us who is a "good" teacher and who is a "bad" teacher.
I'm sure this will all turn out well - just the way the stewards at the 2006 FOMC meeting made sure things turned out well for the economy at large back in 2007 and 2008.