TPMCafe: Prelude to Disaster

The tragedy, for us, is that the world today has reverted toward the model of the 1920s. In the US, we long ago established (through the Humphrey-Hawkins process) a model for professional and political accountability by the Central Bank. The first Fed Chairman to be subjected to the process, Arthur Burns, hated it: Burns was (like Norman) inept and evasive in public; he didn't think the Central Bank should be subjected to the indignity of actually answering questions. ( I know about this, because it was my job to write the questions.)

Paul Volcker was much more professional; despite his differences with Congress over policy he brought the Federal Reserve much more closely into an appropriate legal relationship with public power. But then, with Alan Greenspan, the capacity for oversight faded, because Congress could not cope with the man's talent for obscure expression -- and largely chose not to try.

In Greenspan's time the Fed's apparent power rose, because the economy recentered itself around bank credit and a global dollar standard, while doctrines of small government pushed fiscal policy back into the background. At the same time in Europe a Central Bank was established on the ancien-regime model, independent, above governments and autocratic, led by deeply limited men from the continental elites, while (under a Labour Government!) the Bank of England was restored to independence from the Treasury. Meanwhile in the intellectual arena the followers, admirers and would-be successors to Keynes were pushed firmly to the sidelines or off the stage.