The New Philosophers

At a time when political processes are stalled on both sides of the Atlantic, the US Federal Reserve and the ECB have been engaging in a series of policy innovations, feeling their way toward a solution that could promote and sustain economic recovery. On this basis, the ECB is recasting itself as the incubator of a new intellectual and philosophical synthesis.

But central banks’ new role as supreme arbiters of policy truth is fraught with hazard. Given that the solutions that emerge from their disputations and analyses will be the product of technocratic – not democratic – processes, they are likely to trigger populist backlashes.

Moreover, the policy approaches that central banks produce may be too complex and interlinked to function efficiently. In particular, the attempt to make expansionary policies conditional on the implementation of a host of microeconomic reforms is problematic. If only some parts of a complex package linking fiscal leeway with structural reform are realized, the outcome is likely to disappoint – or even prove counterproductive. When it does, the old philosophical divisions are likely to resurface.

Harold James is Professor of History at Princeton University and a senior fellow at the Center for International Governance Innovation.

Copyright: Project Syndicate, 2014.