Jay Cost of National Review Online identifies a key problem in our system of government.
This is one of the big weak spots in republican governments in modern, integrated economies. The people are often not reliable tribunes of wisdom and farsightedness when it comes to the nation’s finances. Indeed, this was the case even in pre-industrial America. Under the Articles of Confederation, matters of finance and regulation were left to the states, whose leaders — following democratic impulses — managed the currency and trade with gross irresponsibility. Later on, the great experiment in industrial protection, lasting from about 1815 until 1933, was a record of unmet expectations, political corruption, and eventually total calamity as high tariffs worsened the Great Depression. Why? Because while the Congress claimed authority to plan the economy, it lacked the capacity to carry out its ambitions. The politics of responsible economic growth are just too dicey for democratic institutions.
This is a big reason why we have the Federal Reserve, as well as so many independent regulatory agencies that manage key aspects of the economy without much direct oversight. There was a push for these sorts of institutions starting during the Progressive Era, and such agencies were added periodically, especially during the New Deal and Great Society periods. The idea is that immunizing experts from political concerns can free them to make decisions in the best interests of the nation.
But that solution creates problems of its own. For starters, the experts often do not possess the knowledge that they claim to have. It is exceedingly rare that any economist accurately predicts the next recession. And it is exceedingly common that the vast bulk of economists fail to see recessions even as they have already begun. Such was the case with the collapse of 2008–09 — which, we can now see in retrospect, was ongoing even when most economists thought the economy would muddle through.
