In an interview with ProMarket, former Bank of England deputy governor Sir Paul Tucker explains why the “unelected power” of central bankers threatens our system of government.



Sir Paul Tucker

The European Central Bank found itself under renewed scrutiny this month, after Italy accused it of buying too few Italian sovereign bonds, allegedly in an effort to pressure the country’s new populist government to adopt more conventional economic policies.


The accusation was yet another example of the curious position the ECB has repeatedly found itself in ever since the central bank’s president Mario Draghi promised to “do whatever it takes” to preserve the euro in 2012. But it was also part of a larger, global wave of populist attacks against central banks. In Turkey, President Erdogan has repeatedly attacked the country’s central bank for raising interest rates, even going so far as to threaten the bank’s independence. In Britain, Environment Secretary Michael Gove has assailed the Bank of England and other central banks for their loose monetary policies, arguing that these policies benefited a small minority of “crony capitalists” who had “rigged the system” in their favor.


This political backlash came as no surprise to Sir Paul Tucker, the former deputy governor at the Bank of England and a research fellow at the Harvard Kennedy School of Government. Central bankers, Tucker writes in his timely new book Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State, have emerged from the financial crisis with enormous new powers, entrusted by governments with the ultimate responsibility of making the economic recovery work. This change, he writes, relied on the “false hope” that central banks can create long-term prosperity. It is also fundamentally different than the response to the Great Depression, which was led by elected officials, not central bankers. Their expanded responsibilities, argues Tucker, have also turned central bankers into the “poster boys and girls” of unelected power, a process which ultimately erodes the legitimacy not only of central banks, but also our system of government as a whole.


Tucker, the chair of the Systemic Risk Council, a non-partisan think tank composed of former government officials and financial and legal experts, is a lifelong central banker. His book, an ambitious tome that stretches over 656 dense pages, is both a philosophical treatise on the limits of the administrative state and a passionate call for fellow technocrats to heed the lessons of recent political upheavals, pull back their power, and engage the public in a wider debate.


We recently sat with Tucker, who visited the Stigler Center in May for a series of interrelated lunch seminars, for an interview on politics, regulatory capture, and central banking’s crisis of legitimacy.


[The following conversation has been edited for length and clarity]


Q: What do you hope readers take away from your book?


I hope that people will see that the technocracy needs to retreat a bit and leave more space for politics. There’s been a bit of an overshooting by activist judges, central bankers and regulators being the solution to every problem. I don’t think it’s entirely their fault. Legislators need to step up to the plate. 


Q: Central banks, you note, “did not volunteer to be the only game in town, they were volunteered by governments.” If there is overreach, is it not merely a response to the complete failure of our legislative systems?


That’s absolutely right. What happens is, there could be a fiscal response or a monetary response [to a crisis]. When fiscal policymakers sit on their hands, monetary policymakers fill in. The same happens in regulation. Congress could write more detailed laws. They’re plenty capable of writing detailed laws—every tax law they pass is very detailed—but they choose not to.


My contribution is to try and stimulate a debate in which we as citizens would start demanding more from [politicians]. This is going to take years, but reduced expectations from our legislators is not a problem confined to the United States, and is somewhat self-fulfilling.


Q: Central banks, you write, have become the “poster boys and girls” for technocratic, unelected power. To whom should central banks be accountable?


They should be accountable to the people via the legislature. We live in representative democracies. Congress and Parliament are hugely important.


Q: You’ve been a central banker for over 30 years.


And a confirmed policy maker for almost 12.


Q: When you say that there was “overreach” on the part of central banks, what does that mean? How did it come into play while you were a central banker?


It’s not so much a substantive regulatory overreach, in the sense that there’s too much regulation, but whether unelected people should be deciding all of these things.


For instance, how resilient do we want the financial system to be? That’s not a technocratic question. How to deliver it is a technocratic question that people like me know how to [address]. With politics, sometimes it’s the technocrat that ought to be able to spot the political questions. From the outside, all of it just looks very technical, but the technocrats should be able to say “No, no, this is a judgement about values, about the kind of place that people want to live in. I need to take that question to politicians.” I think my world has been slow to take these questions to the politicians.


Q: Why are central bankers not doing that? What’s stopping them?


I think in the US it is partly wrapped up with attitudes toward Congress. In Europe it goes through the Council of Ministers and through the parliament. The Basel regulations were all drawn up by technocrats, but they have a political stamp on them. And I’m not suggesting for a second that exactly the same could operate here, but I worry that people in the US have become almost too dismissive of Congress. It’s not that I can’t see why; it’s that this is self-fulfilling. Judges or regulators substituting for elected legislators may do a better job in the short run, but in the longer run that sacrifices loyalty to our system of government.


“Judges or regulators substituting for elected legislators may do a better job in the short run, but in the longer run that sacrifices loyalty to our system of government.”

Q: You begin the book with Brexit. The populist backlash that we’ve seen in the last couple of years is to a large degree a backlash against experts, among them central bankers. In the public perception, central banks came out of the 2008 crisis with an enormous amount of power, despite having failed to prevent crisis.


I think there’s something in that. I mean, it’s a fact. And the contrast with the 1930s is enormous. Then President Roosevelt led the charge at both reforming the financial system with Congress and in fiscal response, rather than a monetary response.


Narrowly, but I think this matters, you can make pretty decent argument that the central banks did a better job before the crisis than the other regulators. In the UK, the Bank of England wasn’t a regulator before the crisis and in the US the problems first erupted not in banking but in things under the regulation of the SEC or the CFTC or nobody at all.


Q: Central bankers have also become the epitome of global, unaccountable elite. The “Davos Man,” as you call it.


“Don’t go to Davos” is one of the remedies to that. Stay Away.


Q: There are other global elite gatherings besides Davos. Should central bankers stay away from all of them?


Yes. And do plenty of things with the public. One of the things that Chairman Bernanke did during the crisis that I think was great was he went on 60 Minutes. You have to go on television and explain yourself and try and find words that regular people will find interesting and engage with. That’s tremendously important. Go around the country and talk to them.


Q: In the book, you write about political systems moving towards a “peculiar cocktail of hyper-depoliticized technocracy and hyper-politicized populism.” Can we really say today’s technocracy is “depoliticized”? As we see in Europe, for instance, central bankers do make political choices. One can also argue that all decisions having to do with the management of the economy necessarily reflect a certain worldview.


Great question if I may say so, getting to the heart of what Unelected Power is really about. My central argument is that if a democracy gives too much power to formally de-politicized technocrats, then almost inevitably they and the policy field they are responsible for become re-politicized. But that’s worse than not delegating, because it would be politicized policy in the hands of technocrats who we don’t elect.


“If a democracy gives too much power to formally de-politicized technocrats, then almost inevitably they and the policy field they are responsible for become re-politicized.”

Q: Certainly, the ECB has made a number of very significant political decisions.


I’m not even sure the term “political decisions” captures it, actually. It seems to me that kind of falls short of what they did. They ensured that the euro area continue to exist. The burden they carry arises because they serve an incomplete constitutional project.


My own view of what should have happened is the ECB should have gone to a joint meeting of the prime ministers and asked the members of the confederation whether the confederation should continue to exist. Of course, they would have said yes.


Of course, that would run up against the risk of leaks, and had there been leaks it wouldn’t have been nearly as effective as what Mario Draghi did. So I’m open to accusations of naivety here, but I also think you’re taking a great risk when you have an existential guarantor that is not a proper political body. The ECB needs to find a way to navigate its way out of that, and in a recent speech Draghi started to address this point.


Q: Can “hyper-depoliticized technocracy” and “hyper-politicized populism,” these two things that fuel each other, co-exist and adapt to create some sort of balance? Or is there too much of a contradiction there?


I worry that we are witnessing these contradictions playing out, which would be very bad for our system of government. But I do think that our societies can have some technocratic policymaking and an active democracy. It all depends on what we expect from the legislature. It is no good giving up on Congress, instead looking to the court to ensure that the government machinery operates fairly and effectively. No judge can cure the democratic deficit in unelected central bankers and regulators. The book is, at the end, literally in its final sentence, an appeal for legislators, our elected representatives, to do what only they can do.


Q: Is it not too late at this point?


No. It’s never too late. It really isn’t. Things that you should have started before, you just have to start and be patient. One of the peculiar things about being a very powerful technocrat is that you need to be able to understand politics and navigate politics to stay out of politics. And you mustn’t use your understanding of politics to intervene in politics.


The other thing is that although you’ve been asked to do a technical technocratic job you have to yourself lay or reinforce some of the political foundations for it. We call it accountability, and accountability happens in front of Congress and on TV stations and around the country, giving speeches.


“Sometimes, as a regulator, the only people that are interested in what you’re doing are the regulated. This creates the risk of cognitive capture. It needn’t be malign intent, but that can be the effect because the only people who discuss with you what you’re doing, who are truly interested in it, are [from] the industry you’re regulating.”

Q: What would increased accountability look like, in the context of central banks? And how can we balance the need for more accountability by central bankers with the need to avoid short-termism and over-sensitivity to political cycles?


An important part of the answer is giving them a clear objective for each part of their mission: price stability and banking system stability. That way, transparency can give us, as citizens, our elected representatives and the media the information we need to judge their performance and so whether the system of delegated power is working.


By the same token, clear objectives give formally insulated policy makers the wherewithal to respond to political pressure. For similar reasons, giving technocrats clear monitorable objectives helps insulate them from the worst excesses of industry and special interest-group lobbying.


The hard part, I think, is not to drown the public with so much information that the real substance is lost in noise. Lobbyists, and specialist media, thrive on the noise of a data dump. So this isn’t quite as straightforward as it perhaps sounds.


Q: Maybe central bankers being more responsive to elected officials isn’t such a bad thing? Central bank independence as we know it today is largely a product of the late 1970s, after all. Before then, political influence on monetary policy was common, and while this had obvious disadvantages, we also didn’t see the kind of populist backlash that we see today.


Well, the politics of the 1970s was pretty charged, on both sides of the Atlantic, but you’re correct that a consensus gradually emerged that leaving monetary policy decisions to elected politicians was a recipe for high and highly volatile inflation, given the temptation to court popularity via a burst of unsustainable economic growth. With no appetite to go back to the gold standard in full-franchise democracies, the solution was to delegate price stability to independent central banks.


I believe that independence meant that central banks responded much more robustly in early 2009 than a political monetary policy maker would have wanted to or been capable of, as they would have been worried about the effect on savers (who tend to have a high propensity to vote), and I doubt financial markets would have trusted politicians to refrain from inflating away the public debt. So independence seems to me to have been useful in preventing complete economic collapse after the financial disaster in late 2008.


But I am bothered that the central bankers having acted in the face of emergency, politicians didn’t then step up to do more themselves. For example, infrastructure spending, whether funded through taxes or borrowing, could have improved the productive capacity and efficiency of the economy.


Separately, I’m bothered that the public face of crisis management was the Fed chair and (unelected) treasury secretary rather than, in the 1930s, President Roosevelt. Whatever one thinks of the substance of what he did, he communicated it to the American people. This time around people must have felt their fate lay in the hands of remote technocrats.   


Q: Other than political pressures, central banks can also face industry pressures. A number of studies in recent years, including a much-publicized Stigler Center working paper by David Finer, point to what seems like a cozy relationship between the Fed and financial institutions. How can we address the danger of regulatory capture?


When I talk about independence, I mean independence not only from government, but also independence from the industry. That’s absolutely vital. More transparency and a clear objective can help with that too.


The problem is that sometimes, as a regulator, the only people that are interested in what you’re doing are the regulated. This creates the risk of cognitive capture. It needn’t be malign intent, but that can be the effect because the only people who discuss with you what you’re doing, who are truly interested in it, are [from] the industry you’re regulating. The job of the people at the top of the organization is to ensure a wider debate on those things.


Q: How should we address the revolving door between the Fed and the financial industry?


I think the most important thing here is to move towards a norm where the people that serve on these policy bodies are basically in their last job. It’s a special feature of the American judicial system that Supreme Court justices carry on until death, essentially. Elsewhere in the world Supreme Court judges might retire at 75 or 80, but it’s their last job. There is a strong norm that these are immensely powerful people and that’s distinguished and that’s it for them. They’re not on the job market. There’s no reason why you shouldn’t be able to create the norm for the fed.


If you say “Well, we ought to ban them from working in the industry”—which sounds like an attractive thing to do—but then you appoint a 35-year-old for 8-14 years, you’re basically saying that somebody who isn’t even 50 can’t work in the only thing they know about. I suspect that would turn out to be unconstitutional and infringe on liberal freedoms.


I think a better way would be to [understand] these people are really powerful. We should not want them to want for anything after they have done this job, other than caring about their public reputation and how history treats them.


Q: Maybe a longer cooling-off period as well?


Of course. I’m not debating the normal things because I don’t think they will be a solution. If you appoint 35-year-olds and they leave after five years, having a cooling-off period of a year or two years—Spain has two years— is not going to do very much. Normal things like banning them from working in the industry or having a long cooling-off period, they matter and should be part of [the solution], but I don’t think they get to the root of it, which is you need people on these boards that don’t want anything afterwards.


Q: Even if this successfully addresses the revolving door, there’s still the risk of cognitive capture, especially if appointed regulators have spent all of their careers in the industry.


It’s not sufficient, I agree. You need a mixture. I think it would be hard to say no industry experience, but what you do now is you incentivize people to leave and be in academia or industry so they can come back as governor or regional presidents.


“The EU is changing the planet in antitrust, and the US will eventually have to move in that direction and to catch up, not least because what is it for the greatest country in the world to be lagging behind in essentially the key ingredient—the key ingredient—of a market economy?”

Q: How should central bankers resist industry groups that push back against certain regulations or policies?


The important thing there isn’t central banking, it’s antitrust policy. Having a really effective antitrust policy is tremendously important. If you don’t have antitrust policy you end up with vast companies that can affect the rules of the game. Milton Friedman said that companies should concentrate on maximizing benefits for their shareholders, subject to complying with the rules of the game. He put that rider in because there is this constraint, but I suspect he thought of the rules of the game as exogenous, as given. Well, if you have really bad antitrust policy that allows giants to emerge, the rules of the game will not be exogenous but partly determined by the industry itself. Antitrust has been neglected, [but] it’s coming back now…


Q: Not so much in the US, though.


The EU is changing the planet in antitrust, and the US will eventually have to move in that direction and to catch up, not least because what is it for the greatest country in the world to be lagging behind in essentially the key ingredient—the key ingredient—of a market economy?


One of the things I believe, as a central banker, is that central bankers can provide a platform of stability but no more. They can’t produce prosperity. If we’re going to have a market economy, which is what we’ve got, than the real big policy institution is antitrust. Many people in this country, I suspect, will be able to name Ben Bernanke, Janet Yellen, Alan Greenspan and in due course Jay Powell, but I doubt many people can name the head of the FTC or the head of antitrust division at the Department of Justice, or the chair of the FDA. That’s a problem.


Q: How can central banks spur politicians to take back some of their responsibilities without being seen as taking a political stance?


I don’t want to pretend that this is easy. They need to find a way out of that without being confrontational. It’s not as though the occupants of this office can become a protest movement, because then we would all say “my God, you’re not neutral, you’re not impartial, you’re not supposed to have opinions.” This isn’t easy for them to navigate, but somehow they’ve got to. I think that’s tied up with them saying: “I have all this power, but I don’t have a magic wand, and I am not a priest and I am not the country’s chief economist and I am not a maestro and I am not a rock star.” I think that would make the public realize they’ve got to look to politicians for more.


For more on Tucker’s new book and central banking, listen to the Capitalisn’t episode “The Reluctant Central Banker”:



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