The Fed has made two blunders in its history; the first is the Great Depression and the Second was the Great Inflation that ended with the Reagan-Volcker Recession of 1981-82.

In the first mistake the Fed did too little and in the second they did too much.

In the after math of WWII we began to feel that government could solve all problems and that the great minds could control the economy and manage the business cycle. They were wrong.

Robert Samuelson writes in his “The Great Inflation and Its Aftermath”;

“With hindsight, we know that the idea that the economy’s adequate, if imperfect performance could be substantially improved was a pipe dream. The resulting policies not only didn’t do what they promised, they actually did the opposite- led to more, not fewer recessions; to higher not lower unemployment; to slower not faster economic growth; to more not less economic anxiety. What is relevant for our era is that these policies were not undertaken on ignorant whim. Rather they embodied the thinking of most of the nation’s top economists reflecting a broad consensus among their peers.”

“It was the scholarly respectability of these ideas- and the apparent disinterestedness of their sponsors – that recommended them to political leaders and made them easier to sell to the public.”

Lesson #1- Just because something is not perfect does not mean it can be improved.

Lesson #2- Mere intelligence in the pursuit of utopian goals can be a dangerous thing.