The Rise and Fall of the Guardians

How Technocracy Failed During the Financial Crisis

Courtesy Reuters

The financial crisis has seemingly battered the credibility of the U.S. Federal Reserve. But not according to Alan Blinder, the former vice chairman of the Federal Reserve Board of Governors. In September 2009, Blinder argued on ForeignAffairs.com that the Fed was still a model of sound decision-making. In fact, the real problem with the U.S. government, he wrote, is that it places "too many decisions in the political realm and too few in the technocratic one."

Blinder has made this argument before. In a 1997 tribute to the Federal Reserve in Foreign Affairs, Blinder offered what he called "a nasty little thought" -- that the country would be "better off if more public policy decisions were removed from the political thicket."

At the time, such a thought might have seemed like heresy. The crumbling of the Soviet bloc, the collapse of South Africa's apartheid regime, and the fall of many Latin American military dictatorships had renewed faith in populist democratic politics. "People have grown up," explained then British Prime Minister Tony Blair in 2004. "They want to make their own life choices." Blinder, in embracing technocratic governance, appeared to be rowing against the tide.

But Blinder was not alone. In the past quarter century, elected leaders have publicly professed their allegiance to populism. In practice, however, they have often vested more authority in technocrats. The most obvious area in which technocratic rule appeared to triumph was central banking. In the 1970s, most central banks still answered to elected officials. Politicians judged authority over monetary policy to be too important to be surrendered to technocrats. Even in 1989, then Australian Treasurer Paul Keating argued that central bank autonomy "was completely at odds with our traditions requiring public officials to be in the end accountable."

In recent years, however, there has been what Blinder called a "quiet revolution" in central bank governance. Around the world, it became axiomatic that central bankers should be formally shielded from growth-hampering politics. Today's central bank, the economists Paul

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