6 ideas
Delegation to an insulated agency is legitimate only if the legislature sets a clear purpose, objective, and monitorable standard; specifies the agency's powers and the procedures it must follow; and provides for transparency and accountability. Also required: a plan for what happens when the regime's boundaries are reached in an emergency. Independence without all four design elements is abdication rather than delegation.
An independent agency is warranted only when society needs a policy that elected politicians cannot credibly commit to, because short-term electoral incentives lead them to renege. Examples are low inflation or stable financial rules. The test is whether the public wants the goal to be insulated from day-to-day politics, which requires a settled, stable preference about the objective.
Independent agencies must not make big distributional choices or trade off values, such as deciding who wins and loses or how to weigh equality against growth. Those choices belong to politicians who can be voted out. Technocrats may execute a goal set by the legislature but may not decide what the goal should be.
Judge an unelected institution's legitimacy by testing it against a society's deep political values: constitutionalism, the rule of law, and democratic accountability. Efficiency alone is not the standard. An agency can deliver good outcomes and still be illegitimate if it violates these values, so its authority depends on public acceptance of both process and results.
Central banks have gained vast powers since 2008, including quantitative easing, credit policy, and lender-of-last-resort operations. This risks turning them into overmighty citizens whose reach exceeds their democratic mandate. The more tools and discretion an insulated body accumulates, the more it threatens the legitimacy that makes its independence tolerable.
In a crisis, central banks face pressure to act beyond their mandate, and improvised overreach erodes their legitimacy afterward. Emergency frameworks should therefore be specified in advance, including when control returns to elected government, especially where fiscal risk or distributional consequences arise. Crisis discretion should be bounded rather than improvised.