“The only advice we gave that I probably wouldn’t do again,” he said, “is that we said we wouldn’t take off unless – until we both saw a maximum employment and price stability.” Translation: Powell said the Fed probably shouldn’t have said it would wait to raise interest rates again (“lift-off”) until the labor market is fully healed and inflation back on target.
This may seem like a trivial comment. It is now a widely held view among economists, anyway, that the Fed should have started raising interest rates sooner than it did, given the persistence of inflation. This isn’t even the first time Powell has admitted in public comments that the Fed hasn’t got it right.
But the remark was striking all the same, for this kind of boring admission is exceptionally, distressingly rare among civil servants.
The norm is rather to deny, deny, deny. Never admit error. Never apologize. Never back down. Most seem to believe that acknowledging missteps would make them look weak, no matter how minor or obvious the blunder might be.
Former President Donald Trump turned this strategy into an art form, apparently on the advice of his mentor Roy Cohn. But the refusal to concede any mistakes has been embraced not just by Trump himself, but by many other politicians and presidential appointees.
Former Trump aides have sworn up and down that they did not predict Covid-19 deaths would end by May 2020, despite their tweets demonstrating otherwise. They denied misjudging Trump’s commitment to a peaceful transition of power. Or that they assaulted peaceful protesters to clear the way for a presidential photo op.
Who are you going to believe, them or your lying eyes?
Unfortunately, the public often rewards this behavior. Perhaps it’s human nature to confuse confidence with competence, and pretense of perfection with the real thing. Or to defend your “team” against any accusation of error.
Those of us in the media should know better, accustomed as we are to spin, lies and fake denials. Yet often we don’t. We, too, punish public officials when they accept responsibility for mistakes, and we regard the admission of mistake as more damaging than the mistake itself. This creates bad incentives.
Earlier this year, for example, Treasury Secretary Janet L. Yellen quite sensibly admitted that she was “wrong about the path inflation would take” and explained the economic factors that she didn’t had not anticipated or properly taken into account. The statement, which again struck me as fairly mundane, was treated as shocking. Many news reports framed his comments (or “confession”) as a major gaffe.
At the time, I was ready to tear my hair out. What should Yellen have said instead when asked about her past inflation forecast (which, to be clear, most other economists have also misjudged)? Maybe she could have dodged the question. Or better yet, she could have replied, “Inflation is exactly as I predicted! Anyone who says otherwise is fake news.
Listen, getting it wrong, especially in public, can be embarrassing. (I speak from personal experience, alas.) But it is better to be governed by policy makers who acknowledge error, even when that error is embarrassing; explain why they miscalculated; then explain what they learned for the next time.
It is perhaps no coincidence that two high-profile examples of policymakers who modeled this behavior both chaired the Fed. (Yellen served as chair from 2014 to 2018.) Fed officials understand how important it is to maintain credibility if their policies are to work as intended. They know well what new Chicago Federal Reserve Chairman Austan Goolsbee calls “the pathological irony of crisis”: if you lose your credibility, your statements start to mean the opposite of what you say.
“Keep calm” means “Everyone panic”. “Don’t worry about inflation” is interpreted as “Oh yeah, absolutely panic about inflation.
Doing their best to get it right, but then acknowledging when they’re not doing it without a fuss, should prompt institutions like the Fed After credible for the markets. Especially since outside observers can easily identify how far and where the Fed got it wrong, as the central bank frequently releases forecasts.
Of course, the acknowledgment of an error by a public official does not necessarily exempt him from liability. A few high-stakes mistakes (or outright misdeeds) are unforgivable. But I would much rather live in a world where voters and the media treat acknowledgment of past fumbles better than denial of them. It’s the best way to normalize learning, change course, and do better next time, rather than double the mistakes of the past.
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