I've been thinking a lot lately about the political theory of an independent central bank. A lot of the libertarians I know have deep issues with the activities of the Fed, which have been largely unaccountable to elected officials.McCardle does make a valid point about how we abandon our principles of "democratic government" when it suits our cause, whether we be upset about any issue from abortion to medical marijuana. The fact is that we do tend to think that "my issue" is not subject to the normal whims of the democratic policy making process.
That's a valid critique. But here's the problem: the Fed has performed vastly better on any metric except "being elected" than the Congress. There's little doubt in my mind that if we had not had an independent central bank, unemployment would be many percentage points higher, GDP would have contracted much more strongly, and we wouldn't now be making optimistic noises about the thing bottoming out.
Where does that leave me?
Pascal-Emmanuel Gobry tackles this question as part of a larger post on the compatibility of democracy and capitalism, and his thoughts mirror mine.Megan McArdle is very happy that Ben Bernanke, unelected and unaccountable, has a bigger role in the response to the financial crisis than Maxine Waters, and is only able to take the dramatic steps he is precisely because he is unaccountable, and so am I. But -- and I realize this is a cliché, but an unescapable one -- even if you have the smartest technocrats running the country today, what about their successors, and their successors' successors? The historical record of unelected governments in this regard is not very good.Democracy is not so much about electing people as having a process and a system of checks and balances that ensures that basic rights are protected.
Of course, libertarians and liberals and conservatives all mostly abandon this committment to Democracy when there's a principle they care about at stake; democracy is, of course, good and wonderful, but that shouldn't let the majority dictate their opinion on the position of homosexuality in the public sphere . . .
All the people that I know, left and right, who are currently very worried about the democratic implications of the Fed's actions, seem to spend an awful lot of time trying to insulate their pet cause from the democratic process--whether that cause be property rights or sexual behavior. As an institution, what the Fed is doing now is not much different from what most of them want the Supreme Court to do on some issue or another: rule it out of the bounds of majority debate. All of those people would, of course, say that that's different--their issue is really important, and personal. But trust me, any student of the Great Depression will tell you that what happens in a massive financial crisis is both really important, and very personal.
In teh context of the Fed and whether it is elected or accountable in any way is, of course debatable. To the extent that I understand what the Fed is doing (which by the way, they and the Obama Administration and Congress do a poor job of explaining to Joe Public), I don't have a quibble with the Fed taking action. What I have a quibble with is the essentially free hand that Bernake & Co. have been given with practically no oversight from Congress. The same goes with the Treasury Department under Tim Geithner.
And no, I am not being harsh on a Democratic administration or a Democratic Congress because I am a Republican. I am being harsh because, for all intents and purposes, we are tossing the whole idea of checks and balances and Constitutional government out of the window on the premise that we are in an "emergency." While we do need responsive agencies like the Fed or FEMA or DHS or what ever alphabet agency you want to toss out there, the fact is that none of these agencies can or should operate outside of oversight by the people we elect to office. Deference to experts is one thing, but failing to question them at all is entirely another.
We as a nation cannot simply give up the foundation of our nation because of a crisis nor should we give any administration, of any party, a free pass because they say so. If anything, during a crisis we need that oversight even more, just to make sure we don't head down a road blindly for so long that we don't know or can't find our way back.