Stephen Foley: An appointment with danger
Saturday 27 November 2010
US Outlook: Political science students are taught that there are two kinds of democracy, direct and representative, one the rule by referenda, the other by elected officials. Turns out the US is operating a third kind, something you might call appointive democracy.
Since representatives in Congress are locked into a perpetual election cycle, making it all but impossible to move anything important into law, government has actually been subcontracted to appointees at various agencies. So here we are relying on the Environmental Protection Agency to fight climate change, the Securities and Exchange Commission and others to fill in the details of the Dodd-Frank financial reform Act, and so on.
Nowhere is this more readily apparent than on the economy, which badly needs fiscal stimulus and yet is suffering the creeping austerity of state-by-state budget cuts and no prospect of a gridlocked Congress stepping in to help. All of which is to say, let's hope that Ben Bernanke's $600bn quantitative easing works, because it is all we have.
Appointive democracy is better than no government at all – so it is important to stop the creep of political exploitation and partisanship into the business of agencies like the central bank. That is why I really hope the Fed steps back from a proposal to have Mr Bernanke, its chairman, host regular press conferences to explain monetary policy.
Mr Bernanke is instinctively in favour of more transparency, more explicit policy goals, and additional communication by the Fed. It was going to be the "big idea" for his chairmanship, in contrast to his gnomic predecessor, until more pressing matters intervened in the form of the credit crisis. He is also a wise and reasonable communicator, even under pressure.
There is a difference, though, between setting out monetary policy through statements to the markets, speeches to academic audiences, and occasional Congressional testimony, which together provide more than enough guidance, and forewarning market participants.
The Fed's instinct to respond to current criticism with more communication is actually the wrong one. Politicians hold press conferences, not technocrats. The more Mr Bernanke is drawn into the daily back-and-forth of political debate, which will inevitably be the focus of media questioning, the more political and less technocratic the Fed looks.
The heads of the Bank of England and the European Central Bank hold regular press conferences without incident, but the atmosphere is not the same here. Words and phrases ricochet around the internet, stripped of context and often of meaning, to be taken up and used as political scattershot.
I am not proud to be arguing against transparency and accountability. Not least because it gets me some funny looks from other journalists. I am fully aware of the dangers, terrified of what might be the logical conclusions. But sometimes I just want the world's largest economy and most powerful democracy to function properly.
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