(iPoster) Central Banks, Normativity and Democracy

• In Event: Poster Session: Issues in the Political Theory of Economic Equality and Democracy & Political Methodology
  In Poster Session: Poster Session: Issues in the Political Theory of Economic Equality and Democracy

Abstract

Central banks are essential institutions in democratic settings, yet inquiries upon their structure and ways of operating through the lens of normative political theory remain somehow scant. Research in contemporary monetary policy has shown that central banks may exercise significant influence over distributive matters. While some have argued that this influence calls for deep reforms of the ways in which central banks operate in order to preserve their democratic legitimacy, little conceptual work has yet been provided with regard to how and why distributive concerns should actually matter to central bankers. Although it is true that constitutionally independent institutions such as central banks may in fact seemingly become political institutions once this influence over distributive concerns is recognized, we contend that any policy recommendation to address this issue must first rest on sound theoretical as well as normative foundations.
To do so, we start from the ground up and address the central banks’ constitutionally granted mandate, whose success is to be empirically measured, and turn to historical reasons regarding why said mandate is usually void of any normative component, of which distribution is a prime example. We suggest that contemporary views in macroeconomic theory regarding the place of normativity in monetary policy are in tension with the recent expansion in tools available to central bankers, specifically with the move from conventional to unconventional monetary policy, of which quantitative easing is a typical illustration. This expansion in tools has produced situations in which similar outcomes, that is the accomplishment of a given central bank’s mandate, may be reached through different pathways which may impact distribution in different ways. This state of affairs provides us with an interesting conundrum, that is how are central bankers to choose between two different means to reach the same endpoint? Despite central banks’ traditionally being averse to normativity, such choices cannot be made without endorsing some form of normative view regarding redistribution that may inform and shape policymaking.
We defend the idea that such tension provides an opportunity to address the issues raised by critiques of contemporary central banks by addressing their relationship with legitimacy and accountability heads-on. Indeed, not only do these dilemmas help in illuminating normativity within central banks’ policymaking but also create windows of opportunities for further democratic inclusion in monetary policymaking. By including the demos in shaping such ethically fraught choices not only can central banks enhance their democratic legitimacy in light of emerging challenges in both monetary policy as well as democratic theory but also help in creating a sort of division of labor that helps in pinpointing the normative aspects of monetary policy without sweeping them below the rug, thus clarifying between strictly positive and normative aspects of central banking. Doing so proves crucial both for the legitimacy of central banks as well as their role in democracy.

Author

• Yoann Della Croce, McGill University