Sebastian Mallaby in The Guardian
On Tuesday 16 September 2008, early in the afternoon, a self-effacing professor with a neatly clipped beard sat with the president in the Roosevelt Room of the White House. Flanked by a square-shouldered banker who had recently run Goldman Sachs, the professor was there to tell the elected leader of the world’s most powerful country how to rescue its economy. Following the bankruptcy of one of the nation’s storied investment banks, a global insurance company was now on the brink, but drawing on a lifetime of scholarly research, the professor had resolved to commit $85bn of public funds to stabilising it.
Later that same afternoon, Federal Reserve chairman Ben Bernanke, the bearded hero of this tale, showed up on Capitol Hill, at the other end of Pennsylvania Avenue. At the White House, he had at least been on familiar ground: he had spent eight months working there. But now Bernanke appeared in the Senate majority leader’s conference room, where he and his ex-Wall Street comrade, Treasury secretary Hank Paulson, would meet the senior leaders of both chambers of Congress. A quiet, balding, unassuming technocrat confronted the lions of the legislative branch, armed with nothing but his expertise in monetary plumbing.
Bernanke repeated his plan to commit $85bn of public money to the takeover of an insurance company.
“Do you have 85bn?” one sceptical lawmaker demanded.
“I have 800bn,” Bernanke replied evenly – a central bank could conjure as much money as it deemed necessary.
But did the Federal Reserve have the legal right to take this sort of action unilaterally, another lawmaker inquired?
Yes, Bernanke answered: as Fed chairman, he wielded the largest chequebook in the world – and the only counter-signatures required would come from other Fed experts, who were no more elected or accountable than he was. Somehow America’s famous apparatus of democratic checks and balances did not apply to the monetary priesthood. Their authority derived from technocratic virtuosity.
When the history is written of the revolt against experts, September 2008 will be seen as a milestone. The $85bn rescue of the American International Group (AIG) dramatised the power of monetary gurus in all its anti-democratic majesty. The president and Congress could decide to borrow money, or raise it from taxpayers; the Fed could simply create it. And once the AIG rescue had legitimised the broadest possible use of this privilege, the Fed exploited it unflinchingly. Over the course of 2009, it injected a trillion dollars into the economy – a sum equivalent to nearly 30% of the federal budget – via its newly improvised policy of “quantitative easing”. Time magazine anointed Bernanke its person of the year. “The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world,” the magazine declared admiringly.
The Fed’s swashbuckling example galvanized central bankers in all the big economies. Soon Europe saw the rise of its own path-shaping monetary chieftain, when Mario Draghi, president of the European Central Bank, defused panic in the eurozone in July 2012 with two magical sentences. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he vowed, adding, with a twist of Clint Eastwood menace, “And believe me, it will be enough.” For months, Europe’s elected leaders had waffled ineffectually, inviting hedge-fund speculators to test the cohesion of the eurozone. But now Draghi was announcing that he was badder than the baddest hedge-fund goon. Whatever it takes. Believe me.
In the summer of 2013, when Hollywood rolled out its latest Superman film, cartoonists quickly seized upon a gag that would soon become obvious. Caricatures depicted central-bank chieftains decked out in Superman outfits. One showed Bernanke ripping off his banker’s shirt and tie, exposing that thrilling S emblazoned on his vest. Another showed the bearded hero hurtling through space, red cape fluttering, right arm stretched forward, a powerful fist punching at the void in front of him. “Superman and Federal Reserve chairman Ben Bernanke are both mild-mannered,” a financial columnist deadpanned. “They are both calm, even in the face of global disasters. They are both sometimes said to be from other planets.”
At some point towards the middle of the decade, shortly before the cult of the expert smashed into the populist backlash, the shocking power of central banks came to feel normal. Nobody blinked an eye when Haruhiko Kuroda, the head of Japan’s central bank, created money at a rate that made his western counterparts seem timid. Nobody thought it strange when Britain’s government, perhaps emulating the style of the national football team, conducted a worldwide talent search for the new Bank of England chief. Nobody was surprised when the winner of that contest, the telegenic Canadian Mark Carney, quickly appeared in newspaper cartoons in his own superman outfit. And nobody missed a beat when India’s breathless journalists described Raghuram Rajan, the new head of the Reserve Bank of India, as a “rock star”, or when he was pictured as James Bond in the country’s biggest business newspaper. “Clearly I am not a superman,” Rajan modestly responded.
No senator would have his child’s surgery performed by an amateur. So why would he not entrust experts with the economy?
If Bernanke’s laconic “I have 800bn” moment signalled a new era of central-banking power, Rajan’s “I am not a superman” wisecrack marked its apotheosis. And it was a high watermark for a wider phenomenon as well, for the cult of the central banker was only the most pronounced example of a broader cult that had taken shape over the previous quarter of a century: the cult of the expert. Even before Bernanke rescued the global economy, technocrats of all stripes – business leaders, scientists, foreign and domestic policy wonks – were enthralled by the notion that politicians might defer to the authority of experts armed with facts and rational analysis. Those moments when Bernanke faced down Congress, or when Draghi succeeded where bickering politicians had failed, made it seem possible that this technocratic vision, with its apolitical ideal of government, might actually be realised.
The key to the power of the central bankers – and the envy of all the other experts – lay precisely in their ability to escape political interference. Democratically elected leaders had given them a mission – to vanquish inflation – and then let them get on with it. To public-health experts, climate scientists and other members of the knowledge elite, this was the model of how things should be done. Experts had built Microsoft. Experts were sequencing the genome. Experts were laying fibre-optic cable beneath the great oceans. No senator would have his child’s surgery performed by an amateur. So why would he not entrust experts with the economy?
In 1997, the economist Alan Blinder published an essay in Foreign Affairs, the house journal of the American foreign policy establishment. His title posed a curious question: “Is government too political?”
Four years earlier, Blinder had left Princeton University, his academic home for two decades, to do battle in the public square as a member of President Bill Clinton’s Council of Economic Advisors. The way Blinder saw things, this was a responsibility more than a pleasure: experts had a duty to engage in public debates – otherwise, “the quacks would continue to dominate the pond”, as he had once written. Earnest, idealistic, but with a self-deprecating wit, Blinder was out to save the world from returning to that dark period in the Reagan era when supply-side ideologues ruled the roost and “nonsense was worshipped as gospel”. After two years at the White House and another two as vice chairman of the Fed, Blinder’s essay was a reflection on his years of service.
His argument reflected the contrast between his two jobs in Washington. At the White House, he had advised a brainy president on budget policy and much else, but turning policy wisdom into law had often proved impossible. Even when experts from both parties agreed what should be done, vested interests in Congress conspired to frustrate enlightened progress. At the Fed, by contrast, experts were gloriously empowered. They could debate the minutiae of the economy among themselves, then manoeuvre the growth rate this way or that, without deferring to anyone.
To Blinder, it was self-evident that the Fed model was superior – not only for the experts, but also in the eyes of the public. The voters did not want their members of Congress micromanaging technical affairs – polls showed declining trust in politicians, and it was only a small stretch to suggest that citizens wanted their political leaders to delegate as much as possible to experts. “Americans increasingly believe that their elected officials are playing games rather than solving problems,” Blinder wrote. “Political debate has too much ‘spin’ and too little straight talk.” In sum, too much meddling by elected politicians was a turn-off for the voters who elected them. It was a paradoxical contention.
Disaffection with the political mainstream in the America of the 1990s had created a yearning for white-hatted outsiders as potential presidential candidates: the billionaire businessman Ross Perot, who ran in 1992 and 1996; the anti-politician, Steve Forbes, whose signature proposal was to radically simplify America’s byzantine tax code. But rather than replace politicians with populist outsiders, whose grasp of public policy was suspect, Blinder advanced an alternative idea: the central-bank model of expert empowerment should be extended to other spheres of governance.
Blinder’s proposal was most clearly illustrated by tax policy. Experts from both political parties agreed that the tax system should be stripped of perverse incentives and loopholes. There was no compelling reason, for example, to encourage companies to finance themselves with debt rather than equity, yet the tax code allowed companies to make interest payments to their creditors tax-free, whereas dividend payments to shareholders were taxed twice over. The nation would be better off if Congress left the experts to fix such glitches rather than allowing politics to frustrate progress. Likewise, environmental targets, which balanced economic growth on the one hand and planetary preservation on the other, were surely best left to the scholars who understood how best to reconcile these duelling imperatives. Politicians who spent more of their time dialing for dollars than thinking carefully about policy were not up to these tasks. Better to hand them off to the technicians in white coats who knew what they were doing.
A dark question lurked in educated minds. If all the isms were wasms, if history was over, what good were politicians?
The call to empower experts, and to keep politics to a minimum, failed to trigger a clear shift in how Washington did business. But it did crystallise the assumptions of the late 1990s and early 2000s – a time when sharp criticisms of gridlock and lobbying were broadly accepted, and technocratic work-arounds to political paralysis were frequently proposed, even if seldom adopted. President Barack Obama’s (unsuccessful) attempt to remove the task of tackling long-term budget challenges from Congress by handing them off to the bipartisan Simpson-Bowles commission was emblematic of this same mood. Equally, elected leaders at least paid lip service to the authority of experts in the government’s various regulatory agencies – the Food and Drug Administration, the Securities and Exchange Commission, and so on. If they nonetheless overruled them for political reasons, it was in the dead of night and with a guilty conscience.
And so, by the turn of the 21st century, a new elite consensus had emerged: democracy had to be managed. The will of the people had its place, but that place had to be defined, and not in an expansive fashion. After all, Bill Clinton and Tony Blair, the two most successful political leaders of the time, had proclaimed their allegiance to a “third way”, which proposed that the grand ideological disputes of the cold war had come to an end. If the clashes of abstractions – communism, socialism, capitalism and so on –were finished, all that remained were practical questions, which were less subjects of political choice and more objects of expert analysis. Indeed, at some tacit, unarticulated level, a dark question lurked in educated minds. If all the isms were wasms, if history was over, what good were politicians?
For Blinder and many of his contemporaries, the ultimate embodiment of empowered gurudom was Alan Greenspan, the lugubrious figure with a meandering syntax who presided over the Federal Reserve for almost two decades. Greenspan was a technocrat’s technocrat, a walking, talking cauldron of statistics and factoids, and even though his ideological roots were in the libertarian right, his happy collaboration with Democratic experts in the Clinton administration fitted the end-of-history template perfectly. At Greenspan’s retirement in 2006, Blinder and a co-author summed up his extraordinary standing. They proclaimed him “a living legend”. On Wall Street, “financial markets now view Chairman Greenspan’s infallibility more or less as the Chinese once viewed Chairman Mao’s”.
Greenspan was raised during the Great Depression, and for much of his career, such adulation would have been inconceivable – for him or any central banker. Through most of the 20th century, the men who acted as bankers to the bankers were deliberately low-key. They spurned public attention and doubted their own influence. They fully expected that politicians would bully them into trying to stimulate the economy, even at the risk of inflation. In 1964, in a successful effort to get the central bank to cut interest rates, Lyndon Johnson summoned the Fed chairman William McChesney Martin to his Texas ranch and pushed him around the living room, yelling in his face, “Boys are dying in Vietnam, and Bill Martin doesn’t care!” In democracies, evidently, technocratic power had limits.
Through the 1970s and into the 1980s, central-bank experts continued to be tormented. Richard Nixon and his henchmen once smeared Arthur Burns, the Fed chairman, by planting a fictitious story in the press, insinuating that Burns was simultaneously demanding a huge pay rise for himself and a pay freeze for other Americans. Following in this tradition, the Reagan administration frequently denounced the Fed chief, Paul Volcker, and packed the Fed’s board with pro-Reagan loyalists, who ganged up against their chairman.
There were Alan Greenspan postcards, Alan Greenspan cartoons, Alan Greenspan T-shirts, even an Alan Greenspan doll
When Greenspan replaced Volcker in 1987, the same pattern continued at first. The George HW Bush administration tried everything it could to force Greenspan to cut interest rates, to the point that a White House official put it about that the unmarried, 65-year-old Fed chairman reminded him of Norman Bates, the mother-fixated loner in Hitchcock’s Psycho.
And yet, starting with the advent of the Clinton administration, Greenspan effected a magical shift in the prestige of monetary experts. For the last 13 years of his tenure, running from 1993 to 2006, he attained the legendary status that Blinder recognised and celebrated. There were Alan Greenspan postcards, Alan Greenspan cartoons, Alan Greenspan T-shirts, even an Alan Greenspan doll. “How many central bankers does it take to screw in a lightbulb?” asked a joke of the time. “One,” the answer went: “Greenspan holds the bulb and the world revolves around him.” Through quiet force of intellect, Greenspan seemed to control the American economy with the finesse of a master conductor. He was the “Maestro”, one biographer suggested. The New Yorker’s John Cassidy wrote that Greenspan’s oracular pronouncements became “as familiar and as comforting to ordinary Americans as Prozac and The Simpsons, both of which debuted in 1987, the same year President Reagan appointed him to office”.
Greenspan’s sway in Washington stretched far beyond the Fed’s core responsibility, which was to set interest rates. When the Clinton administration wanted to know how much deficit reduction was necessary, it asked Greenspan for a number, at which point that number assumed a talismanic importance, for no other reason than that Greenspan had endorsed it. When Congress wanted to understand how far deficit reduction would bring bond yields down, it demanded an answer from Greenspan, and his answer duly became a key plank of the case for moving towards budget balance. The Clinton adviser Dick Morris summed up economic policy in this period: “You figure out what Greenspan wants, and then you get it to him.”
Greenspan loomed equally large in the US government’s management of a series of emerging market meltdowns in the 1990s. Formally, the responsibility for responding to foreign crises fell mainly to the Treasury, but the Clinton team relied on Greenspan – for ideas and for political backing. With the Republicans controlling Congress, a Democratic president needed a Republican economist to vouch for his plans – to the press, Congress, and even the conservative talk radio host Rush Limbaugh. “Officials at the notoriously reticent Federal Reserve say they have seldom seen anything like it,” the New York Times reported in January 1995, remarking on the Fed chairman’s metamorphosis from monetary technocrat into rescue salesman. In 1999, anticipating the moment when it anointed Ben Bernanke its man of the year, Time put Greenspan on its cover, with smaller images of the Treasury secretary and deputy Treasury secretary flanking him. Greenspan and his sidemen were “economist heroes”, Time lectured its readers. They had “outgrown ideology”.
By the last years of his tenure, Greenspan’s reputation had risen so high that even fellow experts were afraid of him. When he held forth at the regular gatherings of central bank chiefs in Basel, the distinguished figures at the table, titans in their own fields, took notes with the eagerness of undergraduates. So great was Greenspan’s status that he started to seem irreplaceable. As vice-president Al Gore prepared his run for the White House, he pronounced himself Greenspan’s “biggest fan” and rated the chairman’s performance as “outstanding A-plus-plus”. Not to be outdone, the Republican senator John McCain wished the chairman could stay at his post into the afterlife. “I would do like we did in the movie Weekend at Bernie’s,” McCain joked during a Republican presidential primary debate. “I’d prop him up and put a pair of dark glasses on him and keep him as long as we could.”
How did Greenspan achieve this legendary status, creating the template for expert empowerment on which a generation of technocrats sought to build a new philosophy of anti-politics? The question is not merely of historical interest. With experts now in retreat, in the United States, Britain and elsewhere, the story of their rise may hold lessons for the future.
Part of the answer lies in the circumstances that Greenspan inherited. In the United States and elsewhere, central bankers were given space to determine interest rates without political meddling because the existing model had failed. The bullying of central banks by Johnson and Nixon produced the disastrous inflation of the 1970s, with the result that later politicians wanted to be saved from themselves – they stopped harassing central banks, understanding that doing so damaged economic performance and therefore their own reputations. Paul Volcker was a partial beneficiary of this switch: even though some Reagan officials attacked him, others recognised that he must be given the space to drive down inflation. Following Volcker’s tenure, a series of countries, starting with New Zealand, granted formal independence to their central banks. Britain crossed this Rubicon in 1997. In the United States, the Fed’s independence has never been formal. But the climate of opinion on monetary issues offered a measure of protection.
Healthy economic growth was another factor underpinning Greenspan’s exalted status. Globalisation, coupled with the surge of productivity that followed the personal computer revolution, made the 1990s a boom time. The pro-market policies that Greenspan and his fellow experts had long advocated seemed to be delivering the goods, not only in terms of growth but also in falling inequality, lower rates of crime, and lower unemployment for disadvantaged minorities. The legitimacy of experts relies on their presumed ability to deliver progress. In Greenspan’s heyday, experts over-delivered.
Yet these fortunate circumstances are not the whole story. Greenspan amassed more influence and reputation than anyone else because there was something special about him. He was not the sort of expert who wanted to confine politics to its box. To the contrary, he embraced politics, and loved the game. He understood power, and was not afraid to wield it.
Greenspan’s genius was to combine high-calibre expert analysis with raw political methods
Greenspan is regarded as the ultimate geek: obsessed with obscure numbers, convoluted in his speech, awkward in social settings. Yet he was far more worldly than his technocratic manner suggested. He entered public life when he worked for Nixon’s 1968 campaign – not just as an economic adviser, but as a polling analyst. In Nixon’s war room, he allied himself with the future populist presidential candidate Patrick Buchanan, and his memos to Nixon were peppered with ideas on campaign spin and messaging. In 1971, when Nixon went after the Fed chairman, Arthur Burns, Greenspan was recruited to coax Burns into supporting the president. In the mid-1970s, when Greenspan worked in the Gerald Ford administration, he once sneaked into the White House on a weekend to help rewrite a presidential speech, burying an earlier draft penned by a bureaucratic opponent. At the Republican convention in 1980, Greenspan tried to manoeuvre Ford on to Ronald Reagan’s ticket – an outlandish project to get an ex-president to serve as vice president.
Greenspan’s genius was to combine high-calibre expert analysis with raw political methods. He had more muscle than a mere expert and more influence than a mere politician. The combination was especially potent because the first could be a cover for the second: his political influence depended on the perception that he was an expert, and therefore above the fray, and therefore not really political. Unlike politician-politicians, Greenspan’s advice had the ring of objectivity: he was the man who knew the details of the federal budget, the outlook for Wall Street, the political tides as they revealed themselves through polling data. The more complex the problems confronting the president, the more indispensable Greenspan’s expertise became. “He has the best bedside manner I’ve ever seen,” a jealous Ford administration colleague recalled, remarking on Greenspan’s hypnotic effect on his boss. “Extraordinary. That was his favourite word. He’d go in to see Ford and say, ‘Mr President, this is an extraordinarily complex problem.’ And Ford’s eyes would get big and round and start to go around in circles.”
By the time Greenspan became Fed chairman, he was a master of the dark arts of Washington. He went to extraordinary lengths to cultivate allies, fighting through his natural shyness to attend A-list parties, playing tennis with potentially troublesome financial lobbyists, maintaining his contacts on Wall Street, building up his capital by giving valuable counsel to anyone who mattered. Drawing on the advantage of his dual persona, Greenspan offered economic advice to politicians and political advice to economists. When Laura Tyson, an exuberant Berkeley economist, was appointed to chair Bill Clinton’s Council of Economic Advisers, she was flattered to find that the Fed chairman had tips on her speaking style. Too many hand gestures and facial expressions could undermine her credibility, Greenspan observed. The CEA chairwoman should simply present facts, with as little visual commentary as possible.
Greenspan’s critics frequently complained that he was undermining the independence of the Fed by cosying up to politicians. But the critics were 180 degrees wrong: only by building political capital could Greenspan protect the Fed’s prerogatives. Clinton had no natural love for Greenspan: he would sometimes entertain his advisers with a cruel imitation of him – a cheerless old man droning on about inflation. But after a landmark 1993 budget deal and a 1995 bailout of Mexico, Clinton became a firm supporter of the Fed. Greenspan had proved that he had clout. Clinton wanted to be on the right side of him.
The contrast with Greenspan’s predecessor, the rumpled, egg-headed Paul Volcker, is revealing. Volcker lacked Greenspan’s political skills, which is why the Reagan administration succeeded in packing his board with governors who were ready to outvote him. When Greenspan faced a similar prospect, he had the muscle to fight back: in at least one instance, he let his allies in the Senate know that they should block the president’s candidate. Volcker also lacked Greenspan’s facility in dealing with the press – he refused to court public approval and sometimes pretended not to notice a journalist who had been shown into his office to interview him. Greenspan inhabited the opposite extreme: he courted journalists assiduously, opening presents each Christmas at the home of the Wall Street Journal’s Washington bureau chief, Al Hunt, flattering reporters with private interviews even as he berated other Fed governors for leaking to them. It was only fitting that, halfway through his tenure, Greenspan married a journalist whose source he had once been.
The upshot was that Greenspan maximised a form of power that is invaluable to experts. Because journalists admired him, it was dangerous for politicians to pick a fight with the Fed: in any public dispute, the newspaper columnists and talking heads would take Greenspan’s side of the argument. As a result, the long tradition of Fed-bashing ceased almost completely. Every Washington insider understood that Greenspan was too powerful to touch. People who got on the wrong side of him would find their career prospects dim. They would see their intellectual shortcomings exposed. They would find themselves diminished.
Of course, the triumph of the expert was bound to be fragile. In democracies, the will of the people can be sidelined only for so long, and 2016 has brought the whirlwind. The Brexit referendum featured Michael Gove’s infamous assertion that “the British people have had enough of experts”. Since the vote, Mark Carney, the Bank of England governor once pictured as superman, has been accused by the government of running dubious monetary experiments that exacerbate inequality – an attack picked up by William Hague, who this week threatened the central bank with the loss of its independence unless it raised interest rates. In the United States, Donald Trump has ripped into intellectuals of all stripes, charging Fed chair Janet Yellen with maintaining a dangerously loose monetary policy in order to help Obama’s poll ratings.
Inside the Bank of England
Both Gove and Trump sensed, correctly, that experts were primed for a fall. The inflationary catastrophe sparked by 1970s populism has faded from the public memory, and no longer serves as a cautionary tale. Economies have recovered disappointingly from the 2008 crash – a crash, incidentally, for which Greenspan must share the blame, since he presided over the inflation of the subprime mortgage bubble. What little growth there has been has also passed most people by, since the spoils have been so unequally distributed. If the experts’ legitimacy depends on delivering results, it is hardly surprising that they are on the defensive.
And yet the history of the rise of the experts should remind us of three things. First, the pendulum will swing back, just as it did after the 1970s. The saving grace of anti-expert populists is that they do discredit themselves, simply because policies originating from the gut tend to be lousy. If Donald Trump were to be elected, he would almost certainly cure voters of populism for decades, though the price in the meantime could be frightening. In Britain, which is sliding towards a wreck of a divorce with its most important trading partners, the delusions and confusions of the Brexit camp will probably exact an economic price that will be remembered for a generation.
Second, Alan Blinder had a point: democratic politics is prone to errors and gridlock, and there is much to be said for empowering technocrats. The right balance between democratic accountability and expert input is not impossible to strike: the model of an independent central bank does provide a template. Popularly elected politicians have a mandate to determine the priorities and ambitions of the state, which in turn determine the goals for expert bodies – whether these are central banks, environmental agencies, or the armed forces. But then it behooves the politicians to step back. Democracy is strengthened, not weakened, when it harnesses experts.
Thirdly, however, if the experts want to hasten their comeback, they must study the example of Greenspan’s politicking. It is no use thinking that, in a democracy, facts and analysis are enough to win the day. As the advertising entrepreneur John Kearon has argued, the public has to feel you are correct; the truth has to be sold as well as told; you have to capture the high ground with a brand that is more emotionally compelling than that of your opponents. In this process, as Greenspan’s career demonstrates, the media must be wooed. Enemies must be undermined. And, if you succeed, your face might just appear on a T-shirt.
Two decades ago, in his final and posthumous book, the American cultural critic Christopher Lasch went after contemporary experts. “Elites, who define the issues, have lost touch with the people,” he wrote. “There has always been a privileged class, even in America, but it has never been so dangerously isolated from its surroundings.” These criticisms presciently anticipated the rise of Davos Man – the rootless cosmopolitan elite, unburdened by any sense of obligation to a place of origin, its arrogance enhanced by the conviction that its privilege reflects brains and accomplishment, not luck and inheritance. To survive these inevitable resentments, elites will have to understand that they are not beyond politics – and they will have to demonstrate the skill to earn the public trust, and preserve it by deserving it. Given the alternative, we had better hope that they are up to it.