Today Sam Gregg’s article ‘Whither Central Banking?’ appeared in the blog of the Whitherspoon Institute, Public Discourse. In light of Germany Chancellor Angela Merkel’s criticism of central banking Gregg takes a thoughtful analysis on improving central banking to help aid our recovery from the financial crisis we currently face.
Gregg addresses an important political question that must be addressed when determining the roles of central banks:
The bigger political question, however, is the place of central banks in democratic political orders. Insulating central banks from excessive political influence reflects recognition of the truth that even in a democracy there are many public-policy decisions that should not be made by legislative or popular votes. Most democracies, for example, embody constitutional limits on the ability of governments and legislatures to interfere with the judiciary’s operations. This is usually derived from awareness that the common good normally requires some separation of powers in order to prevent excessive centralization of power.
Another problem of central banks, argued by Gregg is:
The problem is that when it comes to the economy, governments have legitimate reasons for being concerned about and involved in the development of economic policy. This inevitably raises questions about how to maintain the autonomy of central banks and what ought to constitute the content of that autonomy. Governments committed to pursuing populist and socialist policies have no qualms about dramatically limiting or even abolishing such autonomy.
Gregg does not only address the problems, but he also suggests a solution. Read more of Gregg’s essay at Public Discourse.