Check­ing the power of un­elected of­fi­cials.


It is of­ten said that the chair of the Fed­eral Re­serve is the sec­ond most im­por­tant per­son in Wash­ing­ton. I’m not sure the state­ment is ex­actly right, but that it is plau­si­ble is, in a sense, re­mark­able. Why should the sec­ond most im­por­tant per­son in Wash­ing­ton not be elected by the peo­ple, or at least directly ac­count­able to and sub­ject to dis­missal by elected of­fi­cials? The pres­i­dent can­not fire mem­bers of the Fed­eral Re­serve Board of Gov­er­nors, and for the past quar­ter-cen­tury it has been taboo for the pres­i­dent or his eco­nomic team to so much as com­ment on the Fed’s ac­tiv­i­ties.

Pres­i­dent Trump has now bro­ken this taboo — as he has so many oth­ers — by com­ment­ing re­peat­edly on Fed pol­icy. That makes the pub­li­ca­tion of “Un­elected Power: The Quest for Le­git­i­macy in Cen­tral Bank­ing and the Reg­u­la­tory State” by Paul Tucker, a for­mer deputy gover­nor of the Bank of Eng­land, es­pe­cially timely.

Tucker has been at the cen­ter of the global fi­nan­cial sys­tem for decades as Ge­orge Soros broke the pound, Bri­tain de­cided to stay out of the euro zone, the Bank of Eng­land be­came in­de­pen­dent and, most im­por­tant, as it con­fronted the great fi­nan­cial cri­sis of 2008. It is to his great credit that rather than tak­ing the typ­i­cal step of a re­tired of­fi­cial and writ­ing an au­to­bi­o­graph­i­cal mem­oir in the “How We Saved the Fi­nan­cial World With Our Courage, Thought­ful­ness and Hu­mil­ity” genre, he has at­tempted some­thing so much more am­bi­tious and for­ward-look­ing.

What makes Tucker’s book pro­foundly im­por­tant and takes it way be­yond most dis­cus­sions of cen­tral bank in­de­pen­dence is his recog­ni­tion that the is­sue is just one man­i­fes­ta­tion of a much broader feature of mod­ern democ­ra­cies: the del­e­ga­tion of power to in­sti­tu­tions de­signed to be in­su­lated from pol­i­tics and the pop­u­lar will. As a se­nior eco­nomic ad­viser to Pres­i­dents Bill Clin­ton and Barack Obama, I was en­joined not just from com­ment­ing on the Fed but from pro­vid­ing in­put to the Fed­eral Com­mu­ni­ca­tions Com­mis­sion as it passed judg­ment on net neu­tral­ity, the Jus­tice De­part­ment as it for­mu­lated an­titrust pol­icy to­ward Mi­crosoft, the Com­merce De­part­ment as it reached judg­ments on for­eign sub­si­dies, and the Fed­eral De­posit In­sur­ance Cor­po­ra­tion as it dealt with fail­ing banks.

As Tucker says in his pref­ace, “This book . . . is about power — un­elected power . . . . How to . . . hold it ac­count­able, le­git­imize it. But it is also about how to make the power of in­de­pen­dent agen­cies use­ful, serv­ing so­ci­ety’s needs.” Ques­tions re­lat­ing to un­elected power go­ing well be­yond cen­tral banks seem es­pe­cially press­ing to­day. Trump was elected in no small part be­cause of a sense that gov­ern­ment in­sti­tu­tions, while per­haps staffed by ex­perts, had come to be un­re­spon­sive to the needs and de­sires of or­di­nary peo­ple. On the other hand, I — and I sus­pect many read­ers of this re­view — hope with more than usual fer­vor that in­de­pen­dent in­sti­tu­tions of gov­ern­ment will main­tain their sep­a­rate­ness from the pres­i­dency in the months and years ahead.

“Un­elected Power” con­sid­ers the role of judges, civil­ian-mil­i­tary re­la­tions and reg­u­la­tory agen­cies but, re­flect­ing Tucker’s back­ground, con­cen­trates most closely on cen­tral banks. His 31-page small-type bib­li­og­ra­phy tes­ti­fies to the depth and breadth of his re­search. He ranges from the pure po­lit­i­cal phi­los­o­phy of Locke and Mon­tesquieu, to the Fed­er­al­ist Pa­pers, to Euro­pean par­lia­men­tary de­bate records, to math­e­mat­i­cal eco­nomic the­o­ries, to trad­ing-floor con­ven­tions in ex­plor­ing his topic. His prac­ti­cal ex­pe­ri­ence with the ten­sions he ad­dresses, com­bined with his dis­tance from con­ven­tional aca­demic dis­ci­plines, makes his writ­ing both more ac­ces­si­ble and more con­vinc­ing than much of what is pro­duced by ad­min­is­tra­tive-law spe­cial­ists and po­lit­i­cal sci­en­tists.

Tucker’s con­clu­sions, tak­ing the form of a set of “Prin­ci­ples of Del­e­ga­tion” that de­lin­eate which mat­ters should be del­e­gated to in­de­pen­dent agen­cies and how they should be mon­i­tored and held ac­count­able, are wise, if not earth-shat­ter­ing.

Dis­cussing his par­tic­u­lar spe­cialty, Tucker finds it nat­u­ral that in nor­mal times, many democ­ra­cies es­tab­lish in­de­pen­dent cen­tral banks to set mon­e­tary pol­icy but have elected of­fi­cials re­tain con­trol over the gov­ern­ment bud­get. Mon­e­tary pol­icy has the widely agreed goal of achiev­ing low in­fla­tion and is highly tech­ni­cal in its ex­e­cu­tion. Gov­ern­ment bud­getary choices in­her­ently in­volve value judg­ments, are less tech­ni­cal and have ef­fects that are much less eas­ily mon­i­tored. Hence fis­cal pol­icy in all democ­ra­cies is un­der the con­trol of elected of­fi­cials.

I won­der, though, if this kind of cleav­age be­tween fis­cal and mon­e­tary poli­cies will be as com­pelling in the fu­ture. The idea that cen­tral banks can de­ter­mine rates of in­fla­tion but can­not over the long term af­fect real eco­nomic per­for­mance has been called into ques­tion by re­cent events. In many coun­tries. no­tably Ja­pan, it has proved dif­fi­cult for cen­tral banks to get in­fla­tion up to tar­get lev­els.

More­over, cen­tral banks are in­creas­ingly be­ing drawn into mat­ters that in­volve value judg­ments. It is widely be­lieved that cen­tral banks in the wake of the fi­nan­cial cri­sis fa­vored the in­ter­ests of the fi­nan­cial sec­tor over other eco­nomic in­ter­ests. More directly, cen­tral banks in­creas­ingly are in­volved in pro­vid­ing credit to many dif­fer­ent ac­tors in the econ­omy. They are cen­trally in­volved with ex­change-rate is­sues, which have im­por­tant po­lit­i­cal ram­i­fi­ca­tions do­mes­ti­cally and in­ter­na­tion­ally. Their ac­tions di­rected at main­tain­ing fi­nan­cial sta­bil­ity in­evitably have con­se­quences for those who hold and do not hold cer­tain fi­nan­cial as­sets.

For th­ese rea­sons, I sus­pect we may have moved be­yond the con­di­tions ar­gu­ing in fa­vor of peak cen­tral bank in­de­pen­dence in the in­dus­tri­al­ized world. On the other hand, as debt pro­jec­tions look in­creas­ingly omi­nous and Congress passes huge un­paid-for tax cuts dur­ing boom eco­nomic times, po­lit­i­cal de­ci­sion-mak­ing in fis­cal pol­icy mat­ters is in­creas­ingly called into ques­tion. Many look for some kind of com­mis­sion or other de­vice to at least par­tially re­move deficit re­duc­tion from pol­i­tics. This last ex­am­ple points up what I think is the prin­ci­pal dif­fi­culty with Tucker’s ex­tremely thought­ful anal­y­sis. It fo­cuses on sen­si­ble struc­tures of de­ci­sion-mak­ing in a world where views dif­fer but all ac­tors are ba­si­cally well-in­ten­tioned.

To take an­other ex­am­ple, I think an un­for­tu­nate as­pect of the ba­si­cally sound Dod­dFrank fi­nan­cial reg­u­la­tion leg­is­la­tion is that it cur­tails cer­tain au­thor­i­ties within the Fed from lend­ing money in sit­u­a­tions like those faced in 2008 with­out ex­plicit po­lit­i­cal au­tho­riza­tion. Of course I fa­vor the prin­ci­ple of demo­cratic ac­count­abil­ity. But I think the likely con­se­quence will be that in some fu­ture cri­sis, a down­turn will be ex­ac­er­bated be­cause politi­cians will not re­spond in some cases un­til events ab­so­lutely com­pel ac­tion. We will all be worse off.

In the wake of the fi­nan­cial cri­sis of 2008, pol­i­cy­mak­ers con­tinue to re­assess the ways in which gov­ern­ment and the fi­nan­cial sec­tor in­ter­act. Demo­cratic in­sti­tu­tions are fac­ing a reap­praisal in light of the wide­spread pop­ulism of the past few years. Tucker’s ar­gu­ments ought to be care­fully con­sid­ered. Of the many books writ­ten by those in­volved in re­spond­ing to the fi­nan­cial cri­sis, his may de­serve the long­est shelf life. Lawrence H. Sum­mers is a past pres­i­dent of Har­vard Univer­sity and now a pro­fes­sor there. He was trea­sury sec­re­tary from 1999 to 2001 and an eco­nomic ad­viser to Pres­i­dent Barack Obama from 2009 through 2010. Paul Tucker is a re­search fel­low at the Har­vard Kennedy School, where Sum­mers teaches.


Fed­eral Re­serve Chair Jerome Pow­ell heads an agency that wields enor­mous power but is kept sep­a­rate from pol­i­tics and the pop­u­lar will.

By Paul Tucker Prince­ton. 642 pp. $35

UN­ELECTED POWER The Quest for Le­git­i­macy in Cen­tral Bank­ing and the Reg­u­la­tory State

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