A few weeks ago, President Erdogan of Turkey announced on the campaign trail that if he is re-elected later this summer, his first act will be to take control of interest rates back from the Central Bank of Turkey.
The currency markets were shocked: the Turkish lira promptly dropped by 10%.
The reason is that President Erdogan’s bold proposal flies in the face of what has been for forty years the modern consensus on the best way to conduct monetary policy. Politicians, that consensus holds, will always be tempted to prioritise popularity at the ballot box over economic stability, resulting in boom-bust cycles ultimately detrimental to growth and employment. The setting of interest rates should therefore be delegated, it says, to a technocratic central bank, which will have the political independence to take the longer term view.
President Erdogan, however, sees things differently. “When people fall into difficulties because of monetary policies, who are they going to hold accountable?” he asked: “They’ll hold the president accountable.” In a democracy, the President was arguing, it is not enough for those who make policy to be competent and effective. When their actions determine who gets what and why, they have to have legitimacy as well; and democratic legitimacy is the one thing that technocrats, almost by definition, lack.
Who is right – the modern consensus, with its emphasis on the need for expertise and independence; or the President, who says accountability and legitimacy should take priority? The underlying issue is summed up in the title of this new book by Sir Paul Tucker – the former Deputy Governor of the Bank of England, and now a fellow at Harvard’s Kennedy School. It is why, when, and how elected governments should entrust their capabilities to Unelected Power.