Of the few economists honest about the economy, there has been a struggle to come up with an explanation for persisting economic struggles. That has led to a plethora of labels applied to the last decade. Brad Delong, for example, once called it the Lesser Depression. Larry Summers has revived Alan Hansen’s Secular Stagnation. I prefer Eurodollar Stagnation to that one, especially since Hansen had the thirties all wrong, but if given a choice the last ten years really should be labeled They Really Don’t Know What They Are Doing.

The “they” is Economists in general and central bankers in particular. Even they aren’t so sure anymore, as Jon Hilsenrath wrote last year for the Wall Street Journal:

“There are a lot of things that we thought we knew that haven’t turned out quite as we expected,” said Eric Rosengren, president of the Federal Reserve Bank of Boston. “The economy and financial markets are not as stable as we previously assumed.”

 

In the 1990s, a period known in economics as the “Great Moderation,” it seemed the Fed could do no wrong. Policy makers and voters saw it as a machine, with buttons officials could push to heat or cool the economy as needed. Now, after more than a decade of economic disappointment, the central bank confronts hardened public skepticism and growing self-doubt about its own understanding of how the U.S. economy works.

Hilsenrath included an astonishing chart with his astonishing article (being a prominent Fed supporter who often wanders a little too close to naked cheerleading).

Though Alan Greenspan had left office in 2006 with a 71% approval rating, the maestro’s luster had already begun to fade (dot-coms and housing bubbles, after all). Then followed Bernanke and 2008. Where once almost three quarters of Americans might have had confidence in the Fed to get it right, only a little more than a third do now.

The public appears to have caught on. Though there isn’t yet a direct line from overall dissatisfaction to the Fed’s doorstep and what’s actually happened, in general people know that something isn’t right. At the very least, the central bank never lives up to its promises let alone its prior reputation.

As noted earlier today, this isn’t strictly a post-2008 phenomenon of displeasure. It has been building since the very dawn of the 21st century:

Politicians have been dogged by scandals from the very introduction of politics to humanity; Lord Acton was right about the influence of power even on otherwise decent people. Maybe it’s the rise of the internet where it’s harder to hide things, but this general dissatisfaction can’t be taxes, Iraq, or even TBTF. It correlates instead awfully closely with the 21st century appearance of something else:

We are working and earning less in this century than certainly at the close of the last one (this is true not just of the US economy). That’s not how the “new economy” promise of the nineties was supposed to play out, and there is a palpable sense of betrayal along those lines that isn’t without a legitimate basis. It’s right now a non-specific feeling that the political establishment isn’t being straight with us, clouded as it often is by other often dramatic political disagreements.

It is, I believe, the hard to quantify sense that opportunity is missing (for a too large proportion of Americans). That was true to some extent in the mid-2000’s and then pushed right out in the open by what happened starting in August 2007. The economy is leaving too many people behind, and not just the 16.3 million no longer included in the denominator of the unemployment rate.

Though that unemployment rate indicates everything is great again, that only serves to heighten the mistrust and dissatisfaction. Thus, it’s harder now to appreciate what is really holding the economy back, apart from some vague sense of incompetence at the Federal Reserve.

Janet Yellen doesn’t have much to worry about, though. She arrives in the twilight of her tenure popular among officials. She isn’t, however, as glowingly accepted as she might otherwise be. The Wall Street Journal reports today that just 60% of surveyed economists gave her their highest marks. While that might seem to be a very favorable result for the outgoing Fed Chair, and that’s exactly how it was described in the Journal, an audience of economists, her peers, is as predisposed to her position as any other possible standard. Sixty percent is certainly low for that particular population.

I have to wonder if those 30% giving her a B instead of an A downgraded their views not because Economists are moving closer to the public but because Yellen has. After all, she gave a speech last year openly questioning core tenets of Economics, and then just a few months ago admitted:

My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.

Economists are loathe to even countenance that the public gripe is anything other than racism or some other irrational fear (of globalization). They are for the technocracy because they are the front part of it. How dare Yellen admit that there might be something to this almost two-decade building of mistrust and angst – bordering on the more severe strains of social and political upheaval.

Maybe in the interests of preserving at least some reputation after she’s out, Yellen, after all, is potentially on the hook for accounting in a way no other Economist will ever be, she allowed herself to (mildly) upset those others of her profession by coming a little too close to They Really Don’t Know What They Are Doing.