Policymaking

I suspect a great number of people believe that most policy which emerges out of Washington is the product of a lot of careful thinking by some really smart people. Their mental acument carefully honed at some of our country's finest universities, those who operate the levers of power train their collective brainpower on the problems which confront us and arrive at elegant solutions. It's a nice thought.

Then you read about things like this:

Over the summer of 1933, FDR found himself relying increasingly on someone he was sure would say "yes"—Morgenthau, his timid old Dutchess County neighbor who held a post at the Farm Credit Administration. With the aid of his "yes" man, Roosevelt launched a novel gold purchase program. The plan was to drive up the general price level by buying gold. Each morning, FDR set the gold price target, personally. This in turn was supposed to help farmers, who would get higher prices for commodities.

Theoretically, Roosevelt's idea of reflating can be defended. More money might mean more growth.

But the exposure to investors that Morgenthau was getting through the gold purchase project of 1933 was already teaching him something. Investors didn't like the arbitrariness. It took away their confidence. One day Morgenthau asked FDR why the president had chosen to drive up the price of gold by 21 cents. The president cavalierly said he'd done that because 21 was seven times three, and three was a lucky number. "If anyone ever knew how we really set the gold price through a combination of lucky numbers etc., I think they would be frightened," Morgenthau wrote in his diary.

I'm generally skeptical of government interventions because of the political interests which invariably factor into the decision-making as well as the knowledge problem faced by planners. Another aspect I keep forgetting -- but which this excerpt brilliantly illustrates -- is that governments are composed not of super computers, but people, with all of their attendant foibles.