Article
The Role of Central Banks in Global Austerity
Indiana Journal of Global Legal Studies
(2015)
Abstract
The literature on austerity, by scholars and policymakers alike, has
largely downplayed the important role of central banks in designing and
implementing global austerity both before and since the 2008 financial
crisis. This article considers how and why the world's leading central
banks display an inherent bias toward austerity. As central banks have
become increasingly influenced and even captured by large private banks
and financial institutions, they have pursued policy agendas that favor
those same private interests. The structure of the U.S. Federal Reserve
suggests a central bank that has been captured by design and is rife with
inherent conflicts of interest in its governance, regulatory, and monetary
policy functions. These conflicts are often overlooked because of the myth
of central bank independence, which has rested on truncated empirical
studies and flawed readings of economic history. Yet, the myth has
legitimized the Federal Reserve's policy agenda-particularly beginning
in the 1980s when Alan Greenspan became chair of the Federal
Reserve-when deregulation, liberalization, and privatization came to
serve the private interests of Wall Street banks while creating a boomand-
bust bubble economy. The austerity bias of central banks was also
revealed in both the academic work and monetary policy approach of Ben
Bernanke, who succeeded Greenspan as Federal Reserve chairman just
ahead of the 2008 financial collapse. Not only was the Federal Reserve's
response to crisis a reflection of the domination of Wall Street interests, it
also revealed a complete misreading of the lessons from the Great
Depression by Bernanke and other mainstream economists. The result
has been a flawed "trickle-down" response to the financial crisis, as the
Federal Reserve and other leading central banks have provided massive
subsidies to financial institutions and markets while relegating other
sectors of the economy and society to the pains of austerity. A more
balanced economic approach will require reform of central bank
governance to include representatives of a wider range of social interests
in monetary policymaking.
Disciplines
Publication Date
Summer 2015
Citation Information
Timothy A. Canova, The Role of Central Banks in Global Austerity, 22 IND. J. GLOBAL
LEGAL STUD. 665 (2015).