The Fed: Be More ‘Real World’ and Not Live In a ‘Theoretical Bubble.’ Here’s How.

Posted on LinkedIn and X (Twitter)

 

By: David S. Levine, MBA

 

Whether or not the Federal Reserve Bank (the Fed) responds to President Trump’s loud urging to lower interest rates, they have not lowered interest rates since December 2024, even though the U.S. economy has been getting stronger. This has resulted in higher mortgage rates which have negatively affected both home buyers and sellers. Additionally,  as “Treasury Secretary Bessent calls for a review of ‘the entire’ Federal Reserve” (CNBC, July 21, 2025), it might really be a good time for a fundamental change in the Fed so it can achieve its mission to be beneficial for all the American people.

The Federal Reserve Bank’s website explains that they currently employ just under 24,000 people, of which 400-450 are professional economists. Research is primarily conducted by this staff of professional economists to analyze economic data, model macroeconomic conditions, forecast inflation and employment, and produce research papers that inform monetary policy decisions. Their work strongly influences the Federal Open Market Committee (FOMC), which is the body that officially decides the official Federal Bank’s interest rates.

It is interesting, and might be surprising to know, that Economics majors’ courses at many universities are most commonly located within departments that are part of the College of Arts and Sciences or Social Sciences. That means the core undergraduate and graduate economics curricula (i.e., microeconomics, macroeconomics) are designed and administered by these academic departments, not from business school departments. This was true of my personal experience.

As a business school graduate (both BS and MBA) student at New York University, the typical ‘theoretical’ economics courses were required. However, like many universities, the NYU economic professors came from the Liberal Arts department. However, in the majority of required business courses, NYU was a proponent of the “Harvard Case Method”, a distinctive teaching approach, where students learn from discussing and analyzing real-life business scenarios drawn from organizations facing complex decisions. Rather than just listening to lectures and learning prescribed solutions, students engage with "cases” that describe a manager or organization's dilemma, usually having incomplete information. In this way, B-school students are trained to think creatively to solve business issues.

In other words, the economists’ approach is ‘theoretical’ and B-school grads are ‘real world’ oriented.

According to their web site, the mission of the Federal Reserve Bank is to promote a stable, healthy U.S. economy and financial system. Besides the ‘banking’ functions, its core objectives are to foster maximum employment, stabilize prices (control inflation), and set interest rates. These functions must be researched and analyzed from a ‘real world’ perspective to provide recommendations to help the Fed achieve its mission. It appears they have been doing it using ‘theoretical’ economists.

There are no published figures for the number of MBAs in the Fed’s workforce (although it is reported that MBAs do comprise a significant share of their professional and managerial employees — particularly in departments like bank supervision, operations, risk management, and administration). But MBAs are not the majority in the research department of the Federal Reserve. The power of the Fed appears to be held by theorists. And as we all know, things that work well ‘in theory’ are not always workable in the real world.

My B-school undergrad and post grad education, plus decades of business experience in Finance, Marketing, Management, Business Consulting/Coaching and teaching, all lead me to suggest a simple potential solution: To produce the research papers that inform the FOMC monetary policy decisions, have MBA’s (with some corporate business experience) replace all the Fed’s “professional economists.”  This will enable the Fed to be more ‘Real World’ and stop living in their ‘Theoretical Bubble.’

  

# # #

David S. Levine, MBA. Author of “How to Run the Business of YOU”. David is a former New York City business, advertising & marketing executive, and a retired university instructor at Rutgers University

 

Comments

Popular posts from this blog

This Liberation Movement’s Only Tactic is to Destroy.

Palestine By Any Other Name Is Still Israel

The Origin and Appropriation of the Word ‘Palestine’ May Surprise You.