The Long Read: Led by a class of omnipotent central bankers, experts have gained extraordinary political power. Will a populist backlash shatter their technocratic dream?
On Tuesday 16 September 2008, early in the afternoon, a self-effacing professor with a neatly clipped beard sat with the president in the Roosevelt Room of the White House. Flanked by a square-shouldered banker who had recently run Goldman Sachs, the professor was there to tell the elected leader of the worlds most powerful country how to rescue its economy. Following the bankruptcy of one of the nations storied investment banks, a global insurance company was now on the brink, but drawing on a lifetime of scholarly research, the professor had resolved to commit $85bn of public funds to stabilising it.
The sum involved was extraordinary: $85bn was more than the US Congress spent annually on transportation, and nearly three times as much as it spent on fighting Aids, a particular priority of the presidents. But the professor encountered no resistance. Sometimes you have to make the tough decisions, the president reflected. If you think this has to be done, you have my blessing.
Later that same afternoon, Federal Reserve chairman Ben Bernanke, the bearded hero of this tale, showed up on Capitol Hill, at the other end of Pennsylvania Avenue. At the White House, he had at least been on familiar ground: he had spent eight months working there. But now Bernanke appeared in the Senate majority leaders conference room, where he and his ex-Wall Street comrade, Treasury secretary Hank Paulson, would meet the senior leaders of both chambers of Congress. A quiet, balding, unassuming technocrat confronted the lions of the legislative branch, armed with nothing but his expertise in monetary plumbing.
Bernanke repeated his plan to commit $85bn of public money to the takeover of an insurance company.
Do you have 85bn? one sceptical lawmaker demanded.
I have 800bn, Bernanke replied evenly a central bank could conjure as much money as it deemed necessary.
But did the Federal Reserve have the legal right to take this sort of action unilaterally, another lawmaker inquired?
Yes, Bernanke answered: as Fed chairman, he wielded the largest chequebook in the world and the only counter-signatures required would come from other Fed experts, who were no more elected or accountable than he was. Somehow Americas famous apparatus of democratic checks and balances did not apply to the monetary priesthood. Their authority derived from technocratic virtuosity.
When the history is written of the revolt against experts, September 2008 will be seen as a milestone. The $85bn rescue of the American International Group (AIG) dramatised the power of monetary gurus in all its anti-democratic majesty. The president and Congress could decide to borrow money, or raise it from taxpayers; the Fed could simply create it. And once the AIG rescue had legitimised the broadest possible use of this privilege, the Fed exploited it unflinchingly. Over the course of 2009, it injected a trillion dollars into the economy a sum equivalent to nearly 30% of the federal budget via its newly improvised policy of quantitative easing. Time magazine anointed Bernanke its person of the year. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world, the magazine declared admiringly.
The Feds swashbuckling example galvanized central bankers in all the big economies. Soon Europe saw the rise of its own path-shaping monetary chieftain, when Mario Draghi, president of the European Central Bank, defused panic in the eurozone in July 2012 with two magical sentences. Within our mandate, the ECB is ready to do whatever it takes to preserve the euro, he vowed, adding, with a twist of Clint Eastwood menace, And believe me, it will be enough. For months, Europes elected leaders had waffled ineffectually, inviting hedge-fund speculators to test the cohesion of the eurozone. But now Draghi was announcing that he was badder than the baddest hedge-fund goon. Whatever it takes.Believe me.
In the summer of 2013, when Hollywood rolled out its latest Superman film, cartoonists quickly seized upon a gag that would soon become obvious. Caricatures depicted central-bank chieftains decked out in Superman outfits. One showed Bernanke ripping off his bankers shirt and tie, exposing that thrilling S emblazoned on his vest. Another showed the bearded hero hurtling through space, red cape fluttering, right arm stretched forward, a powerful fist punching at the void in front of him. Superman and Federal Reserve chairman Ben Bernanke are both mild-mannered, a financial columnist deadpanned. They are both calm, even in the face of global disasters. They are both sometimes said to be from other planets.
At some point towards the middle of the decade, shortly before the cult of the expert smashed into the populist backlash, the shocking power of central banks came to feel normal. Nobody blinked an eye when Haruhiko Kuroda, the head of Japans central bank, created money at a rate that made his western counterparts seem timid. Nobody thought it strange when Britains government, perhaps emulating the style of the national football team, conducted a worldwide talent search for the new Bank of England chief. Nobody was surprised when the winner of that contest, the telegenic Canadian Mark Carney, quickly appeared in newspaper cartoons in his own superman outfit. And nobody missed a beat when Indias breathless journalists described Raghuram Rajan, the new head of the Reserve Bank of India, as a rock star, or when he was pictured as James Bond in the countrys biggest business newspaper. Clearly I am not a superman,Rajan modestly responded.
If Bernankes laconic I have 800bn moment signalled a new era of central-banking power, Rajans I am not a superman wisecrack marked its apotheosis. And it was a high watermark for a wider phenomenon as well, for the cult of the central banker was only the most pronounced example of a broader cult that had taken shape over the previous quarter of a century: the cult of the expert. Even before Bernanke rescued the global economy, technocrats of all stripes business leaders, scientists, foreign and domestic policy wonks were enthralled by the notion that politicians might defer to the authority of experts armed with facts and rational analysis. Those moments when Bernanke faced down Congress, or when Draghi succeeded where bickering politicians had failed, made it seem possible that this technocratic vision, with its apolitical ideal of government, might actually be realised.
The key to the power of the central bankers and the envy of all the other experts lay precisely in their ability to escape political interference. Democratically elected leaders had given them a mission to vanquish inflation and then let them get on with it. To public-health experts, climate scientists and other members of the knowledge elite, this was the model of how things should be done. Experts had built Microsoft. Experts were sequencing the genome. Experts were laying fibre-optic cable beneath the great oceans. No senator would have his childs surgery performed by an amateur. So why would he not entrust experts with the economy?
In 1997, the economist Alan Blinder published an essay in Foreign Affairs, the house journal of the American foreign policy establishment. His title posed a curious question: Is government too political?
Four years earlier, Blinder had left Princeton University, his academic home for two decades, to do battle in the public square as a member of President Bill Clintons Council of Economic Advisors. The way Blinder saw things, this was a responsibility more than a pleasure: experts had a duty to engage in public debates otherwise, the quacks would continue to dominate the pond, as he had once written. Earnest, idealistic, but with a self-deprecating wit, Blinder was out to save the world from returning to that dark period in the Reagan era when supply-side ideologues ruled the roost and nonsense was worshipped as gospel. After two years at the White House and another two as vice chairman of the Fed, Blinders essay was a reflection on his years of service.
His argument reflected the contrast between his two jobs in Washington. At the White House, he had advised a brainy president on budget policy and much else, but turning policy wisdom into law had often proved impossible. Even when experts from both parties agreed what should be done, vested interests in Congress conspired to frustrate enlightened progress. At the Fed, by contrast, experts were gloriously empowered. They could debate the minutiae of the economy among themselves, then manoeuvre the growth rate this way or that, without deferring to anyone.
To Blinder, it was self-evident that the Fed model was superior not only for the experts, but also in the eyes of the public. The voters did not want their members of Congress micromanaging technical affairs polls showed declining trust in politicians, and it was only a small stretch to suggest that citizens wanted their political leaders to delegate as much as possible to experts. Americans increasingly believe that their elected officials are playing games rather than solving problems, Blinder wrote. Political debate has too much spin and too little straight talk. In sum, too much meddling by elected politicians was a turn-off for the voters who elected them. It was a paradoxical contention.
Disaffection with the political mainstream in the America of the 1990s had created a yearning for white-hatted outsiders as potential presidential candidates: the billionaire businessman Ross Perot, who ran in 1992 and 1996; the anti-politician, Steve Forbes, whose signature proposal was to radically simplify Americas byzantine tax code. But rather than replace politicians with populist outsiders, whose grasp of public policy was suspect, Blinder advanced an alternative idea: the central-bank model of expert empowerment should be extended to other spheres of governance.
Blinders proposal was most clearly illustrated by tax policy. Experts from both political parties agreed that the tax system should be stripped of perverse incentives and loopholes. There was no compelling reason, for example, to encourage companies to finance themselves with debt rather than equity, yet the tax code allowed companies to make interest payments to their creditors tax-free, whereas dividend payments to shareholders were taxed twice over. The nation would be better off if Congress left the experts to fix such glitches rather than allowing politics to frustrate progress. Likewise, environmental targets, which balanced economic growth on the one hand and planetary preservation on the other, were surely best left to the scholars who understood how best to reconcile these duelling imperatives. Politicians who spent more of their time dialing for dollars than thinking carefully about policy were not up to these tasks. Better to hand them off to the technicians in white coats who knew what they were doing.
The call to empower experts, and to keep politics to a minimum, failed to trigger a clear shift in how Washington did business. But it did crystallise the assumptions of the late 1990s and early 2000s a time when sharp criticisms of gridlock and lobbying were broadly accepted, and technocratic work-arounds to political paralysis were frequently proposed, even if seldom adopted. President Barack Obamas (unsuccessful) attempt to remove the task of tackling long-term budget challenges from Congress by handing them off to the bipartisan Simpson-Bowles commission was emblematic of this same mood. Equally, elected leaders at least paid lip service to the authority of experts in the governments various regulatory agencies the Food and Drug Administration, the Securities and Exchange Commission, and so on. If they nonetheless overruled them for political reasons, it was in the dead of night and with a guilty conscience.
And so, by the turn of the 21st century, a new elite consensus had emerged: democracy had to be managed. The will of the people had its place, but that place had to be defined, and not in an expansive fashion. After all, Bill Clinton and Tony Blair, the two most successful political leaders of the time, had proclaimed their allegiance to a third way, which proposed that the grand ideological disputes of the cold war had come to an end. If the clashes of abstractions communism, socialism, capitalism and so on were finished, all that remained were practical questions, which were less subjects of political choice and more objects of expert analysis. Indeed, at some tacit, unarticulated level, a dark question lurked in educated minds. If all the isms were wasms, if history was over, what good were politicians?