Getting It Wrong
How Faulty Monetary
Statistics Undermine the Fed, the Financial System, and the Economy
William A. Barnett
Blame for the recent financial crisis and recession has commonly been
assigned to everyone from Wall Street firms to individual homeowners.
It has been widely argued that the crisis and recession were caused
by “greed” and the failure of mainstream economics. In Getting
It Wrong, leading economist William Barnett argues instead that
there was too little use of the relevant economics, especially from
the literature on economic measurement. Barnett contends that as financial
instruments became more complex, the simple-sum monetary aggregation
used by central banks, including the U.S. Federal Reserve, became obsolete.
Instead, a major increase in public availability of best-practice data
was needed. Households, firms, and governments, lacking the requisite
information, incorrectly assessed systemic risk and significantly increased
their leverage and risk-taking activities. Better financial data, Barnett
argues, could have signaled the misperceptions and prevented the erroneous
When extensive, best-practice information
is not available from the central bank, increased regulation can constrain
the adverse consequences of ill-informed decisions. Instead, there was
deregulation. The result, Barnett argues, was a worst-case toxic mix:
increasing complexity of financial instruments, inadequate and poor
quality data, and declining regulation.
Following his accessible narrative
of the deep causes of the crisis and the long history of private and
public errors, Barnett provides technical appendixes, containing the
mathematical analysis supporting his arguments.
William A. Barnett is Oswald Distinguished
Professor of Macroeconomics at the University of Kansas, Director at
the Center for Financial Stability in New York City, and Senior Fellow
at the IC2 Institute at the University of Texas at Austin.
He is Editor of the eminent journal, Macroeconomic Dynamics,
and is coauthor with Nobel Laureate Paul Samuelson of the book, Inside
the Economist’s Mind, translated into seven languages. He was
on the staff of the Federal Reserve Board from 1974 to 1982.
CFS Director, William A. Barnett, won the American Publishers Award for Professional and Scholarly Excellence (the PROSE Award) for the best book published in economics during 2012 for his MIT Press book, Getting It Wrong.
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Getting it Wrong is published by MIT Press.
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Learn more about Advances in Monetary and
Financial Measurement (AMFM).