Reading Kindleberger in Washington and Berlin: Ideas and Leadership during a Time of Crisis

One fault line in the architecture of today’s economic governance exposed by the financial crisis is in the organization of central banks and their relationship to the political sphere. The world saw a startling convergence towards central bank independence starting in the 1990s, as ideas and interests combined to make a notion – that monetary policy should be shielded from partisan politics – into a virtually uncontested norm. Although a few naysayers questioned its wisdom, the boom years that followed seemed to lend credence to the view that technocrats would be superior to politicians in orienting monetary policy. The crisis, however, revealed central bankers as powerful political actors, not mere technocrats: as they have gone beyond their organizational mandates, they became more overtly ‘distributive.’ The Fed, ECB and BoE all actively worked to stabilize their freefalling economies while the BoJ has anchored the recent revival of a decades-long moribund economy. This paper offers a cross-national survey of these recent developments, situates them within the prior academic literature, and asks whether the technocracy argument for ‘apolitical’ central banks is still valid today. How can the neoliberal idea of central bank independence cope with the modern need for political accountability and legitimacy during hard times?