There was a real irony in the recent intervention by the Federal Reserve System to provide the money that enabled the firm of JPMorgan Chase to buy Bear Stearns before it went bankrupt. The point was to try to prevent a domino effect of panic in the financial markets that could lead to a downturn in the economy.
The irony is that it was almost exactly 100 years ago — 1907, to be exact — that the original J. P. Morgan arranged a bailout of a troubled financial institution for the same purpose of preventing a panic that could end up with the whole economy declining.
The Federal Reserve was created to prevent future panics. It didn't work. In fact, the Fed was in many ways largely responsible for the Crash of 1929. It just goes to show the folly of believing that a group of bankers can set the price of credit better than the market.
There is no question that the people who run the Federal Reserve System today are a lot more knowledgeable about economics than those who ran it back in the days of the Great Depression. Indeed, the average student who has passed Economics 101 today is probably more knowledgeable than those who ran the Federal Reserve System back during the Great Depression.
Being a disinterested government official does not mean that you know what you are doing. That fact gets left out of the equation in a lot of proposals for new government programs.
I don't know if I agree with Sowell that the folks at the Fed know more today than they did back then. If anything, after so many years of Keynesian indoctrination at the B schools, they might know less.