I recently re-read Fligstein et al’s paper ‘Seeing Like the Fed’ which asks: “Why was the FOMC [Federal Open Market Committee that sets monetary policy in the USA] so sanguine in its economic projections?” That is, why were the FOMC “so slow to recognize the impending collapse of the financial system [during the GFC] and its broader consequences for the economy” (p.879)? It’s an important question and an interesting paper.
The study synthesises consideration of frames and their effects on interaction in groups, insights into human cognition from cognitive sociology, and perspectives on group decision-making processes. For example, they argue that the typical dominance of a core frame in a group “makes it difficult, or impossible, to see facts that are inconsistent with a group’s prior beliefs, whatever those beliefs are” (p.880), and they review related evidence from FOMC meeting records and other relevant case data.
Fligstein et al describe the FOMC meetings as follows: “The main purpose of these meetings is to discuss economic and financial conditions in the United States and to make monetary policy decisions.” They outline the meeting process in their paper:
The meetings are highly structured (Abolafia 2012; Baez and Abolafia 2002). Every meeting begins with a round of oral reports on the current conditions and future direction of the economy. These reports fall into two categories, those presented by staff and those presented by each Committee member and Reserve Bank president. Staff reports always include general data about growth and inflation, but they may also be geared to a special topic that the FOMC wishes to explore. The reports by the governors and presidents concern their own analyses and forecasts of output and inflation. The presidents’ reports also cover current business conditions in their respective districts. They are based largely on surveys of, and informal discussions with, district business contacts like CEOs.
The second part of the meeting is devoted to the FOMC’s main policy decision: setting the target for the federal funds rate. Committee members discuss whether to raise, lower, or hold constant the federal funds target rate. At the end of that discussion, Committee members vote on the policy decision. The result is announced publicly in a press release…”
Fligstein et al draw on two literatures: the literature on framing (Erving Goffman’s work), and the cognitive sociology literature on culture and cognition which “points to groups’ socially structured tendencies to see positive over negative scenarios” (p.883).
This analytical process of using social theory to explain knowledge practices and their consequences is similar to my approach (which mobilises insights from both social and psychological/cognitive sciences to understand and enhance knowledge practices).
The analysis presented in ‘Seeing Like the Fed’ is fairly compelling but from a practice perspective additional aspects could have been examined. Below I provide a high-level outline of some potential further lines of inquiry.
For instance, a knowledge practice perspective calls for greater examination of actors’ routines and associated seemingly mundane actions (Camic et al. 2011). Key research question could include: what did the Committee members and other key actors do on a daily basis (i.e. their everyday activities between the FOMC meetings) to stay informed about the developments in the economy? What did they do to test or refine their understanding? What were their information habits? How did these routines – and related practices that “constitute the everyday work” of involved actors (Camic et al. 2011, p.22) – influence their understanding of the issues the FOMC was considering? From a practice perspective one possibility is thus probing the everyday work of FOMC members and other key actors, thereby enabling consideration of the downstream effects of actors’ daily routines and habits on the FOMC meetings and their policy outcomes.
A related obvious aspect could be probed more deeply: how did the key actors (e.g. the President of the Federal Reserve Bank in each State) interpret, structure and carry out their key tasks? For instance, consider the remarks made by each president as part of the “oral reports” at the FOMC meetings. What did each president do to prepare their remarks for the meeting? How were the “informal discussions” carried out (i.e. to inform these remarks) and what effects did this have on their reports? Who did they talk to (and who didn’t they talk to)? About what topics? And, most importantly, how did this influence what data was considered by the Committee?
Third, the paper’s consideration of how economic data and knowledge was appraised and put to use (in the meetings) could also be expanded. I should first note that this is, in many respects, a strong aspect of the paper. For example, one interesting case study presented in the paper considers how FOMC meeting attendees interpreted housing market data, related risks and what actions were judged as appropriate in light of this. Notably there is evidence of somewhat diverse views in the Committee on whether there was a housing bubble, on its potential size (if there was one) and its significance. The paper focusses on forms of reasoning (e.g. macroeconomic reasoning) and how this influenced data interpretation and the Committee’s resulting policy decisions.
However, given that the FOMC meetings entail group appraisal of economic data and policy options, attending further to what people do (as per a practice lens) could have also entailed analysis of key practices during group deliberation. Related to this it’s well known that groups often fail to live up to their potential. Various mechanisms such as “cascade effects” – where “group members follow the statements and actions of those who spoke or acted first” (Sunstein and Hastie, 2014) – could have been examined as well as other factors frequently involved in group failure.
Indeed, Fligstein et al’s conclusions would have been more compelling had they also considered the evidence for alternative plausible explanations (e.g. group failure hypotheses).
Finally, Fligstein et al didn’t investigate the routinisation of FOMC meetings (as per the “highly structured” process that’s used), nor why particular practices had become routine and their effects. Though their concluding discussion does speculate on whether actions could be taken to better enable consideration of both “dissident views” and “the potential pitfalls of any policy decision”, limited attention is given to the sources and effects of FOMC meeting practices .
Regarding my research interests, one thing it would be interesting to consider is similar processes and issues related to energy policy-making in Australia such as meetings of the COAG Energy Council and/or the meetings of the new Energy Security Board (link) that was established last year following the Finkel Review into the Future Security of the National Electricity Market.
Camic, C., Gross, N. & Lamont, M. (eds) 2011, Social Knowledge in the Making, University of Chicago Press, Chicago and London.
Fligstein, N., Brundage, J.S. & Schultz, M. 2017, ‘Seeing Like the Fed: Culture, Cognition, and Framing in the Failure to Anticipate the Financial Crisis of 2008’, American Sociological Review, vol. 82, no. 5, pp. 879-090.
Sunstein, C.R. & Hastie, R. 2014, ‘Making Dumb Groups Smarter’, Harvard Business Review, December issue.