Today the Bank of England announced that it would follow the lead of the Federal Reserve and maintain interest rates at .5%. The bank didn’t stop there however, warning voters that next week’s Brexit referendum posed “the largest immediate risk facing UK financial markets, and possibly also global financial markets. “ Considering the growing public support for the UK’s separation from the EU, the statement can be seen as a last ditch effort by the BoE to push back against the effort and the move has been strongly criticized by British politicians skeptical of the EU.
Of course central bankers using their position of influence to try to street the actions of both policy makers and voters is nothing unusual. (In fact, manipulation of public opinion has become an explicit policy tool of central bankers in recent years.)
In 2008, for example, it was an intense scare campaign lead personally Chairman Bernanke and Secretary Henry Paulson that helped finally push lawmakers to agree to the Wall Street bailout.
In his book An Act of Congress, Robert Kaiser detailed Bernanke’s warnings to lawmakers:
Paulson understood the mission. His chief of staff, Jim Wilkinson, a veteran of the Bush White House staff, had laid it out to him as he left the Treasury for Capitol Hill: "This is only going to work if you scare the shit out of them." Paulson knew that Bernanke could do this best….
Bernanke said that he had been studying the Great Depression for his entire adult life. "If we don't act in a very huge way, you can expect another Great Depression, and this is going to be worse," he said sternly. "It is a matter of days before there is a meltdown in the global financial system." And he warned, "Our tools are not sufficient" to deal with this crisis.
Bernanke’s warning had its intended effect:
If anyone at the table doubted Bernanke's unexpected conclusion that a second Great Depression could be imminent, he or she didn't say so that night. Who were they to question these two experts, who seemed so scared themselves? In such a situation, it is instinctive for members of Congress to defer to the executive's authority.
Now if Congressman Ron Paul had been in the room, he might have reminded his fellow lawmakers that this was the same Bernanke that had spent years in denial of the housing bubble that he and other Austrian economists had warned about. Also largely ignored was that it was the Fed’s inconsistent policy of bailing out AIG, and failing to do so with Lehman Brothers, that created greater uncertainty in the market. But Ben Bernanke had made it clear there was no time to debate Ben Bernanke’s grasp of the economy.
Of course Bernanke was right that a failure to bailout Wall Street banks would have caused economic pain. It’s likely that a number of large institutions would have gone bankrupt. But there’s nothing unprecedented about the failure of large banks, and the failures of such “too big to fail” firms would have brought with it less consolidation within the banking industry and served to have held irresponsible firms responsible for destructive lending policies. Instead, the Fed terrified politicians into adopting policies that have hampered economic growth, while planting the seeds for a future financial crisis.
Central bankers utilizing scare tactics to pressure politicians into agreeing with their desires over that of voters is hardly isolated to the United States.
Earlier this month, Mario Draghi, head of the European Central Bank, has issued his own “dire warnings” if the policy makers of members nations don’t follow his policy advice. In the eyes of central planners like Draghi, the wishes of the people in the underlying countries cannot be allowed to get in the way of his policy vision for Europe.
Of course, defenders of central bankers would argue that it is both natural and appropriate for politicians to listen to these financial experts. While it is true that it is important for policy makers to make informed decisions when it comes to matters of governance, it can be argued that no one is more responsible for the current weakness in the global economy than the unprecedented policies of people like Bernanke, Draghi, and Chairman Janet Yellen. But no matter how often these same actors are wrong, their opinion is still cherished by politicians star struck by their title.
So no, central bankers should not be treated as wise oracles who’s guidance is desperately needed. Instead, we should throw off the tyranny of the PhD’s and embrace the decentralization of power that is desperately needed to allow civilization to thrive.
Brexit would be a great way to start.
