In the economics profession, mainstream opinion on the Federal Reserve System is mostly positive.  However, at the Huffington Post Ryan Grim notes that there may be more than solid research and objective opinion behind that consensus.  It may be because the Fed employs or publishes a large chunk of the country’s monetary economists:

The Fed has been dominating the profession for about three decades. “For the economics profession that came out of the [second world] war, the Federal Reserve was not a very important place as far as they were concerned, and their views on monetary policy were not framed by a working relationship with the Federal Reserve. So I would date it to maybe the mid-1970s,” says University of Texas economics professor — and Fed critic — James Galbraith. “The generation that I grew up under, which included both Milton Friedman on the right and Jim Tobin on the left, were independent of the Fed. They sent students to the Fed and they influenced the Fed, but there wasn’t a culture of consulting, and it wasn’t the same vast network of professional economists working there.”

But by 1993, when former Fed Chairman Greenspan provided the House banking committee with a breakdown of the number of economists on contract or employed by the Fed, he reported that 189 worked for the board itself and another 171 for the various regional banks. Adding in statisticians, support staff and “officers” — who are generally also economists — the total number came to 730. And then there were the contracts. Over a three-year period ending in October 1994, the Fed awarded 305 contracts to 209 professors worth a total of $3 million.

Just how dominant is the Fed today?

The Federal Reserve’s Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a “visiting scholarship.” A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009….

Robert Auerbach, a former investigator with the House banking committee, spent years looking into the workings of the Fed….

Auerbach found that in 1992, roughly 968 members of the AEA designated “domestic monetary and financial theory and institutions” as their primary field, and 717 designated it as their secondary field. Combining his numbers with the current ones from the AEA and NABE, it’s fair to conclude that there are something like 1,000 to 1,500 monetary economists working across the country. Add up the 220 economist jobs at the Board of Governors along with regional bank hires and contracted economists, and the Fed employs or contracts with easily 500 economists at any given time. Add in those who have previously worked for the Fed — or who hope to one day soon — and you’ve accounted for a very significant majority of the field.

Auerbach concludes that the “problems associated with the Fed’s employing or contracting with large numbers of economists” arise “when these economists testify as witnesses at legislative hearings or as experts at judicial proceedings, and when they publish their research and views on Fed policies, including in Fed publications.”

The article points out that it is not as simple as paying off otherwise unbiased researchers to do pro-Fed research, but since working at the Fed or publishing in journals edited by those who have is necessary to advance in the field, the Fed can effectively shut down any dissent.  Furthermore, they have a phalanx of economists at the ready, perhaps not to defend every action the Fed takes, but certainly to defend its existence as an institution.  These economists have taken on the same role as what Murray Rothbard called “court historians” who wrote the official versions of history in which the government was always right.

Austrian economists are all too familiar with this phenomenon as their anti-Fed arguments have been written off for years as cranky or simply outdated.  Hopefully, the Fed’s ineptitude in creating the housing bubble and what I expect is some substantial inflation in the near future will put a crack in that edifice, which will allow some dissident ideas into academia.  Still, the Fed is holding most of the cards.