- Economics
Central bank independence is not an absolute virtue. The Federal Reserve cannot be completely independent and print money to use at it sees fit. Independence is constrained by a limited mandate, limited tools, and by accountability. Independent central banks are constructed by governments, to help those governments precommit to good long-run policies. In the near future, the precommitment to repay government debts rather than inflate them away will figure more prominently than the tension between inflation vs. unemployment that has been prominent in the past. Since central bankers face the same temptations as politicians, the limitations of a wellconstructed mandate are more effective precommitments than independence with freedom of action. Complaints about the Fed’s expanded activities are also better addressed by renewed attention on its limited mandate than by attacking or enhancing its independence.
