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That's a key point. The image of a Fed chairman as a technocratic curator of monetary value -- grim, miserly, mysterious, autonomous -- faded decades ago, notably after the Fed's disastrous performance in the Great Depression and the general consensus, buttressed by Keynesian insights, after World War II that the goal of government policy should be full employment, or as close as we can get. That attitude has increasingly shaped Fed policy, and was obscured only by Paul Volcker's gutsy decision in the late 1980s to brush off short-term politics and kill inflation with high interest rates. No one would accuse Alan Greenspan of being an advocate of tight money. And Bernanke, for all his heroics, is hardly Montagu Norman. The current crisis makes this an even more complex situation. The theory of an independent central bank was initially narrowly construed: The central bank protected the currency, a task that grew trickier and more political with the collapse of gold standards in developed economies after the Great Depression. In the Fed's case, bank regulatory responsibilities accrued to it over time, a process that has significantly accelerated over the past few years. (McArdle's notion that the Fed has done such a superb job doesn't account for its regulatory failures, not just with Greenspanian deregulation, and inattention to mortgage lending, but also to its decades-long role encouragement bank consolidation.) Part of this growth in power and reach came as the government assumed large and larger responsibilities for economic management and regulation. Would this be an issue if the Fed simply were accountable to the currency? In effect, the Fed evolved into a more conventional component of an expanding administrative state, if always at a slight remove. In short, the fact that we have so much trouble fitting the central bank into a democracy arises from the fact that the bank (and the government) has become so powerful. The initial theory of narrow central bank autonomy was designed for a situation that no longer exists. Now, of course, there's much talk in Washington of handing over to the Fed a much larger role as a systemic regulator, with broad oversight over all of finance. To discuss Fed "independence" in the context of these kinds of powers is absurd; Congress, the White House, the public would never allow true independence for long. And indeed, anyone who still clings to the belief in the need for monetary autonomy at the central bank should fear the political contagion that will come from systemic responsibilities. Besides, unlike a number of European nations with a longer tradition of top-down economic management, the U.S. has long harbored powerful sentiments toward decentralization and fragmentation from both libertarians and populists. Our tortured history with central banking still lurks out there, a potential Greenspan and Bernanke both acknowledged. In a crisis like this, populist pressures to run the show course even more strongly. Indeed, many of the moves Bernanke has made as a crisis chairman that McArdle admires arose not from a desire to protect monetary value -- how could it? -- but from a sensitivity to economic and political realities. At this point, the real issue with the Fed is: What is the utility of allowing it to keep the fig leaf of autonomy it still retains? I think there is a good reason, which is why the systemic regulator job is so problematic, but that's another argument. - Robert Teitelman See McArdle's post from TheAtlantic.com Robert Teitelman is the editor in chief of The Deal.
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From: Rodrigo Riadi,
Michael, Some do mention it, but not often in the mainstream media. It's probably a combination of a) ignorance and b) the fact that the media's business agenda often overlaps with those of the government-finance nexus... Cheers,
Posted on:
April 16, 2009 1:15 PM
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Megan McArdle over at the TheAtlantic.com 
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Why does nobody, including yourself, even mention once the participation and culpability of the central planners at the Fed in the current crisis?!? They tinker with the economy and our money, the world burns, and they get a free pass for it?
Good job.