Intellectuals have a long history of supporting anti-democratic movements. For decades, our universities were dominated by Marxist posers and other folk of an unsavory nature. Before the Second World War, fascism, eugenics and social Darwinism were all highly fashionable ideas. Economics, in contrast to other subjects, like biology, history or sociology, has a somewhat better track record. Still, the authoritarian impulse is also occasionally found within the economics profession.
Anti-democratic elements scored a major victory with central-bank independence. Economists convinced politicians it would be preferable to delegate monetary policy to a committee of gifted, wise and incorruptible intellectuals. This elite could dispassionately consider the latest economic data and decide what interest rate would be best for the rest of us. Some economists claimed that grubby political accountability only served to create an inflationary bias that could only be eliminated if interest rates were taken out of the hands of self-serving politicians.
Some economists now hope to extend this idea to fiscal policy. In a recent blog post, Dani Rodrik laments the lack of institutional imagination when it comes to determining the fiscal stance.
Certain fiscal decisions, and most critically the level of the fiscal deficit, can be delegated to an independent board. Such a board would fix the maximum difference between public spending and revenue in light of the economic cycle and debt levels, while leaving the overall size of the public sector, its composition, and tax rates to be resolved through political debate. Establishing such a board in the US would do much to restore sanity to the country’s fiscal-policymaking.
Leaving fiscal policy to elected representatives generates a kind of madness that only a committee of bureaucrats can resolve. Since voters choose their representatives, the implication must be that voters cannot be trusted to choose the right people to run fiscal policy. Rodrik seems ready to allow the political process to determine the composition of fiscal policy. However, if politicians cannot be trusted with determining the level of deficit, why should we think that they can be trusted to determine the level of expenditure, or the composition of revenues?
Certainly, advanced economies are facing serious fiscal difficulties. However, rising debt levels is just one of a long list of political challenges. Should we delegate all our problems to committees of bureaucrats rather than trust our venal but electorally accountable politicians? Why even bother employing local bureaucrats? Why not select that small group of super intelligent apparatchiks who reside in Brussels and let them wisely run the country?
The creation of an independent central bank and the monetary policy committee serves as an object lesson in what can go wrong when politicians abrogate their responsibilities and handover policy-making to bureaucrats. The Bank of England has failed to consistently meet its inflation target for nearly 5 years. Rather than pursue price stability, which was supposed to be the stated aim of the independent Bank of England, the MPC has made a series of calamitous interest-rate decisions that destabilized financial markets, robbed savers, and generated the largest recession since the war.
True, they were assisted by a gaggle of incompetent politicians in Whitehall. However, regular elections are still a requirement for parliament. When given an opportunity, the British people wanted another crew to row the boat. There is, unfortunately, no such democratic accountability hanging over the heads of the monetary policy committee.