How Central-Bank Independence Dies

Since the world’s major central banks came to the global economy’s rescue in 2008, they have had more and more tasks foisted upon them, even as some politicians question their expanded role and others seek to undermine their policymaking autonomy. To escape this dilemma, monetary authorities must get back to doing what they do best.

CAMBRIDGE – With the global rise of populism and autocracy, central-bank independence is under threat, even in advanced economies. Since the 2008 financial crisis, the public has come to expect central banks to shoulder responsibilities far beyond their power and remit. At the same time, populist leaders have been pressing for more direct oversight and control over monetary policy. And while central banks have long been under assault from the right for expanding their balance sheets after the crisis, now they are under attack from the left for not expanding their balance sheets enough.

This is a remarkable shift. Not too long ago, central-bank independence was celebrated as one of the most effective policy innovations of the past four decades, owing to the dramatic fall in inflation worldwide. Recently, however, an increasing number of politicians believe that it is high time to subordinate central banks to the prerogatives of elected officials. On the right, US President Donald Trump and his advisers routinely bash the US Federal Reserve for keeping interest rates too high. On the left, British Labour leader Jeremy Corbyn has famously called for “people’s quantitative easing” to provide central-bank financing for government investment initiatives. “Modern Monetary Theory” is an idea in the same vein.

There are perfectly healthy and legitimate discussions to be had about circumscribing the role of central banks, particularly when it comes to the large-scale balance sheet operations (such as post-crisis quantitative easing) that arguably trespass into fiscal policy. However, if governments undercut central banks’ ability to set interest rates to stabilize inflation and growth, the results could be dangerous and far-reaching. If anti-inflation credibility is lost, governments may find it very difficult – if not impossible – to put the genie back in the bottle.

Hoping for a Midterm Split Decision

The conservative case for a Republican Senate and a Democratic House.

.. Let me suggest a third option. If you are a conservative who is moderately happy with some of Trump’s policy steps, fearful of liberalism in full power, but also fearful of Trump untrammeled and triumphant, the sensible thing to root for — and vote for — is the outcome that appears most likely at the moment: A Republican majority in the Senate and a Democratic majority in the House of Representatives.

.. The best argument for conservative support for Donald Trump was always defensive: Elect him and you prevent the installation of a long-term liberal majority on the Supreme Court, and perhaps chasten the Democratic Party and arrest its leftward march.

For that argument to persuade, you had to trust the institutional Republican Party’s promise to contain Trump’s authoritarian instincts and restrain his follies. You also had to downplay the long-term damage, to conservatism and the body politic, of putting someone with such poisonous rhetorical habits in the bully pulpit.

.. so far Trump has been more constrained and less destructive than I expected — his foreign policy less destabilizing (so far) than either of his predecessors, his cruelest policy instincts walked back under pressure, the country more prosperous, his appointments more responsible and a large-scale investigation into his possible crimes proceeding, beset by Trumpian insults but otherwise mostly unimpeded by the White House.

To the extent that any Republicans deserve credit for this constraint, though, they are mostly elected Republicans in the Senate. The House is more pure, uncut MAGA, more reflexive in its defense of a president whose behavior is often indefensible, more poisoned by the worst Trumpist tendencies (witness the steady migration of the Iowa congressman Steve King toward an overt white nationalism) and more inclined to allow Trump a free hand should he seek to make his actual presidency exactly like his Twitter feed.

.. So a Democratic House would supply a much more effective check on that temptation, along with more vigorous scrutiny of corruption in the White House, about which congressional Republicans have been studiously incurious. And it would offer that check without jeopardizing any potential conservative legislative achievements — because, let’s be frank, the congressional G.O.P. isn’t going to do anything serious with its power if it gets re-elected except confirm judges, and you don’t need the House to elevate Amy Coney Barrett if there’s one more high court vacancy.

.. for the genuinely populist sort for conservative (that is, the best kind), having a Democratic House might force Trump himself back toward the economic populism of his campaign, which he mostly abandoned but has suddenly remembered in the last days before the midterms, talking up a phantom middle-class tax cut and proposing an “America First” approach to drug pricing.

Given the more favorable Senate map and the possibility of a recession, Democrats can reasonably hope to retake the upper chamber in the next four years no matter what. And it will go much worse for the right if that Democratic majority has 60 seats in that scenario as opposed to 52 — something that will be determined by this fall’s election as much as by what happens two or four years hence.

Of course, if you’re a Trump skeptic who believes that only an earth-salting defeat will enable the re-emergence of a decent right, then trying to constrain a future liberalism will seem less important than rooting for the necessary disaster to arrive for Republicans today. But I don’t think our polarized system lends itself to salt-the-earth defeats anymore, and I also don’t think that parties necessarily emerge from them wiser than before — since in such defeats they’re condensed to their more fervent and often foolish core.