History shows us that the U.S. Federal Reserve's grasp on economic reality hasn't been anywhere near as strong as you might hope or expect, so maybe it's time it used a new economic model.
Back in 2011, CNBC's Karen Tso asked me how I could be so critical of Yellen's predecessor, Ben Bernanke, an acknowledged academic expert on the Great Depression. My answer was that Bernanke, his predecessor, Alan Greenspan, and many others in the economic establishment are associated with a single strand of economic thinking, neo-classical (and more specifically, monetarist) economics.
Although this approach is being increasingly discredited, in practice it remains despite its utter failure to anticipate the global financial crisis (GFC) — or indeed just about any other significant financial crisis- the dominant school of economic thinking.
Professor Steve Keen, my advisory board colleague of economics think tank IDEA Economics, has stridently criticized the group-think of Bernanke including Larry Summers, Ken Rogoff, Paul Krugman and the IMF's Olivier Blanchard, who all studied the same courses taught by Stanley Fischer at the Massachusetts Institute of Technology.
The group's views aren't entirely uniform; but are informed by a uniform economic framework. Differences in opinion tend to be about details rather than fundamentals. Hence selective mass blindness prevents the economics profession answering the question posed by Queen Elizabeth II to the London School of Economics "Why did nobody notice it (the GFC)?"