Paul Krugman, Brexit, and Unaccountable Government

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Paul Krugman, Brexit, and Unaccountable Government

Then-chairman of the Federal Reserve Ben Bernanke in 2011.  (Photo: Shirley Li/Medill/flickr/cc)

Paul Krugman devoted his column on Friday to a mild critique of the drive to take the United Kingdom out of the European Union. The reason the column was somewhat moderate in its criticisms of the desire to leave EU is that Krugman sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further.

If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired. There is a whole economics literature on the importance of being able to fire workers as a way of ensuring work discipline. Unfortunately this never seems to apply to the people at the top. And this is seen most clearly in the cases of those responsible for economic policy in the European Union.

The European Central Bank (ECB) was amazingly negligent in its failure to recognize the dangers of the housing bubbles in Spain, Ireland, and elsewhere. Its response to the downturn was also incredibly inept, needlessly pushing many countries to the brink of default, thereby inflating interest rates to stratospheric levels. Nonetheless, when Jean-Claude Trichet retired as head of the bank in 2011, he was applauded for his years of service and patted himself on the back for keeping inflation under the bank's 2.0 percent. (For those arguing that this was the bank's exclusive mandate, it is worth noting that Mario Draghi, his successor, is operating under the same mandate. He nonetheless sees it as the bank's job to maintain financial stability and promote growth.) 

Not only were Trichet and his colleagues not fired, that was not even any talk of it. No one even seriously proposed some sort of cut to Trichet's pay or some other penalty for f**king up just about as much as is possible for a central bank president. This is unaccountable government.

Of course the story in the United States is not much different. Ben Bernanke was sitting at the helm of the Fed when the bubble burst. In fairness, most of the run-up of the bubble had taken place before he took over in January of 2006, but he had already been in top economic roles for several previous years, first as a member of the Board of Governors and then as President Bush's chief economic adviser. If he had been awake he should have been able to see the growth of the bubble and the risks associated with its collapse.

Nonetheless it was considered outrageously rude to suggest that Bernanke or any of his colleagues should be fired for their failure. Usually the idea was treated as an unfunny joke. Then it would be attributed to some sort of personal vendetta. (For the record, I don't really know Bernanke, but from all accounts, I hear he is a very decent person.) 

Anyhow, there is a real problem of unaccountable government in both the EU and the United States and it is ingrained very deeply in elite culture. If we can't fire people at the top when they mess up horribly, then there is no accountability. As it stands, we can't even talk about it. (Did anyone see any columns in a major newspaper calling for firing Bernanke for his failure to see the bubble and to take steps to counteract it? And I don't mean raising interest rates.)

This gets back to the famous dirty toilet problem. If the custodian doesn't clean the toilet properly, he gets fired. Everyone understands that. But if the central bank president sinks the economy, costing millions of people their jobs and their homes, well, who could have known. Yes, there is a really big problem of accountable government in the EU, and here.

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