I recently read an article written by former Fed economist Richard Alford over at Naked Capitalism. He focused his criticism on the zero interest rate policy (ZIRP) currently deployed by the Fed under the watch of Chairman Ben Bernanke. There has been increasing noise surrounding ZIRP and more mainstream suggestions that interest rates were too low for too long between 2001 and 2006.Alford’s article gets into quite a bit of detail, but it is worth a read if you enjoy geeky economics stuff. Mainstream macroeconomists believe that the economy can be explained and managed with mathematical formulas. In fact, the formulas are really quite simple and do not capture the dynamics of the millions of “irrational” actors therein. One favorite is the Taylor rule which suggests a target for the Fed funds rate – the key interest rate set by the central bank. Alford points to a Taylor op-ed which states that rates were too low from 2002-2005.Bernanke has suggested that rates necessarily had to be low (and must stay low) to fend off the threat of deflation. When analyzing Bernanke’s definition of deflation, however, Alford suggests deflation was never a threat. Thus, interest rates were lower than they “should have been” for no good reason.I don’t believe that the Fed should be setting short term interest rates or any interest rates at all for that matter. It is fun to watch the various economists who think they have a magic bullet to optimize the economy take shots at each other. None of these men (or women, but mostly men) can outsmart the market dynamics of a multi-trillion dollar economy. All of these men think they are smarter than you. What is worse is that such hubris causes damage.The Austrian school of economics (which is not accepted in the mainstream) teaches us that low interest rates lead to malinvestment. Malinvestment leads to over-production, inflation, and asset bubbles. These factors ultimately collapse when the rates are raised or, worse, when credit expansion leads to bankruptcies and unemployment.The Fed has implemented disastrous policies for decades. Big Wall Street institutions who benefit have created a system to lobby and support policy makers in Washington. Our Congress, Executive Branch, and the Federal Reserve have been all too willing to play right along.