Recent nominations to join the board of governors of the Federal Reserve have raised concerns about political threats to the independence of monetary policy-making. The Economist has explained the dangers of weakened central banks, not only in the United States but also elsewhere in the world. And economists and economic journalists have questioned the economic ideas of President Trump’s latest Fed picks, both of whom have now withdrawn their names.
Selecting candidates for membership of the Federal Open Market Committee (FOMC) based primarily on their political views would lead to worse monetary policy outcomes than has been the case over the last 15 years.
Of our 43 experts, 40 participated in this survey and the response was almost unanimous. Weighted by each expert’s confidence in their response, 79% strongly agreed with the statement, 20% agreed, and just 1% was uncertain.
Among the short comments that the experts are able to include when they participate in the survey, some expressed what is now a longstanding consensus in economics about central bank independence. As Eric Maskin at Harvard said, ‘Good monetary policy is largely technocratic, not political.’ Robert Shimer at Chicago added: ‘Independence of the central bank is the cornerstone of good monetary policy.’
Others were explicit about the threat of a stronger influence of electoral politics on monetary policy-making. David Autor at MIT commented: ‘Monetary policy has an important public mission – and it’s not about electoral politics.’ Maurice Obstfeld at Berkeley observed that: ‘Sound central bank policy requires a long-term perspective that is insulated from electoral-cycle pressures.’ And Robert Hall at Stanford mentioned that: ‘The obvious danger is an unwise monetary expansion timed to win an election.’
Two experts highlighted the word ‘primarily’ in the statement to which the panel responded. Darrell Duffie at Stanford noted that ‘”Primarily” political implies (a) lower priority on skill at monetary policy, (b) could place weight on political over economic outcomes.’ Anil Kashyap at Chicago stressed: ‘”Primarily” is key here. Diversity of thought and experience is good; picking central bankers because of political fealty is a very bad idea.’
Daron Acemoglu at MIT concurred with the statement but expressed an additional concern about Fed appointments: ‘Absolutely. But we should also worry about other things, including links to the financial industry.’
Larry Samuelson at Yale returned to the central point of the statement: whether monetary policy outcome will be worse in future with appointments made on the basis of political views. He concluded: ‘The Fed derives its strength from its apolitical nature. A politicized Fed will not be nearly as effective.’
All comments made by the experts are in the full survey results.
Romesh Vaitilingam
@econromesh
May 2019
Selecting candidates for membership of the Federal Open Market Committee (FOMC) based primarily on their political views would lead to worse monetary policy outcomes than has been the case over the last 15 years.
Responses
Responses weighted by each expert's confidence
Participant | University | Vote | Confidence | Bio/Vote History |
---|---|---|---|---|
Daron Acemoglu |
MIT | Bio/Vote History | ||
Absolutely. But we should also worry about other things, including links to the financial industry.
|
||||
Alberto Alesina |
Harvard | Bio/Vote History | ||
|
||||
Joseph Altonji |
Yale | Bio/Vote History | ||
|
||||
Alan Auerbach |
Berkeley | Bio/Vote History | ||
|
||||
David Autor |
MIT | Bio/Vote History | ||
Monetary policy has an important public mission -- and it's not about electoral politics
|
||||
Katherine Baicker |
University of Chicago | Bio/Vote History | ||
|
||||
Abhijit Banerjee |
MIT | Bio/Vote History | ||
|
||||
Marianne Bertrand |
Chicago | Bio/Vote History | ||
|
||||
Markus Brunnermeier |
Princeton | Bio/Vote History | ||
|
||||
Raj Chetty |
Harvard | Did Not Answer | Bio/Vote History | |
|
||||
Judith Chevalier |
Yale | Bio/Vote History | ||
|
||||
David Cutler |
Harvard | Bio/Vote History | ||
|
||||
Angus Deaton |
Princeton | Bio/Vote History | ||
|
||||
Darrell Duffie |
Stanford | Bio/Vote History | ||
"primarily" political implies (a) lower priority on skill at monetary policy, (b) could place weight on political over economic outcomes.
|
||||
Aaron Edlin |
Berkeley | Bio/Vote History | ||
Helping a party is different from helping the country.
|
||||
Barry Eichengreen |
Berkeley | Bio/Vote History | ||
|
||||
Liran Einav |
Stanford | Bio/Vote History | ||
|
||||
Ray Fair |
Yale | Bio/Vote History | ||
|
||||
Amy Finkelstein |
MIT | Did Not Answer | Bio/Vote History | |
|
||||
Austan Goolsbee |
Chicago | Bio/Vote History | ||
Politicizing the media, the Congress and the Supreme Court has worked out so well, why not do the same for the economy?
|
||||
Michael Greenstone |
University of Chicago | Bio/Vote History | ||
|
||||
Robert Hall |
Stanford | Bio/Vote History | ||
The obvious danger is an unwise monetary expansion timed to win an election.
|
||||
Oliver Hart |
Harvard | Bio/Vote History | ||
|
||||
Bengt Holmström |
MIT | Bio/Vote History | ||
|
||||
Caroline Hoxby |
Stanford | Did Not Answer | Bio/Vote History | |
|
||||
Hilary Hoynes |
Berkeley | Bio/Vote History | ||
|
||||
Kenneth Judd |
Stanford | Bio/Vote History | ||
|
||||
Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
Current appointees are appointed based on their views. I.e.. Democratic president appoint Democrats. Republican presidents do the same.
|
||||
Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
Primarily is key here. Diversity of thought & experience is good; picking central bankers because of political fielty is a very bad idea
|
||||
Pete Klenow |
Stanford | Bio/Vote History | ||
Jonathan Levin |
Stanford | Bio/Vote History | ||
|
||||
Eric Maskin |
Harvard | Bio/Vote History | ||
Good monetary policy is largely technocratic, not political
|
||||
William Nordhaus |
Yale | Bio/Vote History | ||
|
||||
Maurice Obstfeld |
Berkeley | Bio/Vote History | ||
Sound central bank policy requires a long-term perspective that is insulated from electoral-cycle pressures.
|
||||
Emmanuel Saez |
Berkeley | Bio/Vote History | ||
|
||||
Larry Samuelson |
Yale | Bio/Vote History | ||
The Fed derives its strength from its apolitical nature. A politicized Fed will not be nearly as effective.
|
||||
José Scheinkman |
Columbia University | Bio/Vote History | ||
|
||||
Richard Schmalensee |
MIT | Bio/Vote History | ||
|
||||
Carl Shapiro |
Berkeley | Bio/Vote History | ||
|
||||
Robert Shimer |
University of Chicago | Bio/Vote History | ||
Independence of the central bank is the cornerstone of good monetary policy.
|
||||
James Stock |
Harvard | Bio/Vote History | ||
|
||||
Richard Thaler |
Chicago Booth | Bio/Vote History | ||
This is the annual question used to determine whether respondents are sentient. Hoping I pass.
|
||||
Christopher Udry |
Northwestern | Bio/Vote History | ||
|