Sir Paul Tucker is a fellow at the Harvard Kennedy School and chair of the Systemic Risk Council. Previously, he was Deputy Governor at the Bank of England, sitting on its monetary policy, financial stability, and prudential policy committees. Internationally, he was a member of the G20 Financial Stability Board, leading its work on too big to fail; a director of the Bank for International Settlements; and chair of its Committee for Payment and Settlement Systems.

We thank Paul Tucker and the Center for Financial Stability (CFS) for permission to publish this conversation regarding his recent book Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State. The interview was originally published on centerforfinancialstability.org.

Q. Paul, why did you write “Unelected Power”?

I wanted to do two things, which turned out to be related. One was to explain why I, and others among the Bank of England’s then leaders, leaned against some of the regulatory powers people wanted to us to have after the Great Financial Crisis (GFC), and why we pressed for quite demanding substantive and structural constraints on the new powers that were conferred. In a nutshell, we didn’t want to be overmighty citizens.

But the other thing driving me was a wish to express unease about the much more fundamental issue of our societies’ drift towards Technocracy through the delegation of more and more government power to unelected regulators, central bankers, and activist judges — taking us toward a form of undemocratic liberalism. The book is really a paean to the virtues of representative democracy, and a plea to our legislators to get properly involved again in government by giving regulatory agencies clear objectives that can be monitored. That theme of the book turned out to be especially important for the US, where too many people in the center ground of politics, many technocrats among them, seem to have lost faith in Congress. To be honest, I have been a bit alarmed by that. Even if their dismay with Congress were warranted, relying more and more on unelected policymakers to fill the gap is not a sustainable answer in the long run.

Q. Have central banks become a fourth branch of government?

In most advanced-economy democracies, no. In the US and elsewhere, the central bank is formally insulated from day-to-day politics but also subordinate to the three main branches. Congress could abolish Fed independence if it chose. The European Central Bank (ECB) has been challenged in the constitutional courts. Central bank leaders are nominated by elected executive branch politicians. Central banks are a bit special, though, compared with much of the administrative state. Because the monetary levers are latently instruments of taxation, they cannot be given to the elected executive branch without violating the values of the separation of powers. Delegating to a constrained independent agency is, in effect, a solution to this problem, so long as the constraints and incentives are robust. In that case, monetary independence is a corollary of our high-level constitutionalist values, as I discuss in chapter 12 of Unelected Power. (That means, by the way, that central banks should not choose their own inflation target or, where they do, as in the US, they should engage in public debate before deciding.)

In the euro area, however, the central bank is much closer to being a fourth branch. At root, that is because the confederation of member states doesn’t have a consistent constitutional structure: the euro area does not have a political fiscal authority but, in the ECB, it has created a body with quasi-fiscal powers. We saw what that means when, in 2012, the ECB rescued the euro-area and its wider European Project of ever closer union. No other European body could have provided that existential support. That wouldn’t remotely be true of the US or my own country, Britain.

Q. How should democracy and the rule of law impact central banking?

Much the most important thing is to say that they should, of course. Here in the US I think that technocratic defenders of the Fed (and other regulatory bodies) would do well to take seriously the sincerity of, to use labels I employ in the book, the “Constitutionalist Right” and the “Participatory Left” when they express unease about the administrative state cast in terms of their political values…. Continue Reading