Independent from who exactly? Central banks and democracy (part 1)

[MUSIC PLAYING] MARK BLYTH: From the Rhodes Center for International Economics and Finance at the Wharton School at Brown University, my name is Mark Blyth. I'm the host of the Rhodes Center Podcast. At the end of last semester, I had a chance to talk to Leah Downey. She's a political theorist in London at King's. And she has a book out called Our Money-- Monetary Policy as if Democracy Matters.

And we had a good, wide-ranging talk about monetary policy, central banks, and the whole shebang. We plan to release that conversation this fall, but in the interim, a few things have happened which have, let's say, altered the conversation around central banking in the United States and elsewhere.

So we decided to call Leah back up for a follow-up and incorporate those new things into our conversation. So what we've got here is a two parter. Part 1, which you're going to hear this week is the original conversation. Part 2 is the update where we basically plug in all the stuff that we've learned since then. One other thing to note, if you'd rather watch this conversation, you can find the video version by searching the "Rhodes Center podcast" on YouTube. Here's the first of those two conversations.

Leah, welcome to the pod.

LEAH DOWNEY: Thanks for having me, excited to be here.

MARK BLYTH: So the first thing I should do is apologize for mispronouncing your name for the first five years that I knew you. So put listeners in the context of this-- Leah, L-E-A-H, if you're Scottish would be Lee. So for the first five years I knew Leah, I said Lee. And then eventually she said, my name is Leah, And I went, oh.

LEAH DOWNEY: Yeah.

MARK BLYTH: That was rather awkward. So putting that to one side, we're here today to talk about this fabulous new book, which is, Our Money-- Monetary Policy as if Democracy Matters. The title kind of says quite a lot, doesn't it, the "as if" bit? Did you have to fight to get it in italics?

LEAH DOWNEY: Yeah, actually. I fought a little bit to get it in italics. And I fought to get on the back the little note about it being legal tender.

MARK BLYTH: Yeah, which, of course, could be a counterfeit claim.

LEAH DOWNEY: There you go.

MARK BLYTH: There you go. So you watch out for that. So let's set the stage for this. Central banks, loads of people have written about central banks. They became the quintessential domestic and international economic governors.

LEAH DOWNEY: Yep.

MARK BLYTH: We delegated pretty much every responsibility we could to them on the basis of a theory that politicians can't be trusted with money ever about time and consistency. And we thought, well, that's good. So then we'll give it to these unelected technocrats. Then came the financial crisis.

And they basically have two tools, which is, raise and lower the price of borrowing money and buy and sell some assets to influence liquidity conditions. And it turned out that wasn't enough to stem the aspects of the crisis, even if they stopped the economy falling through the floor.

They are also a bit prone to austerity. And for a while, they were held in quite malodour. Then along came COVID. And COVID, we asked them again to deal with inflation rather than deflation, which was the policy the last time. And they didn't do that bad a job with it. So yeah, two cheers for central banks.

But along comes Leah. And Leah says, hang on a minute. This is not right, because ultimately this isn't just about some kind of technical argument about political business cycles or something like this. There's deep philosophical questions here as to what we're doing and why we're doing it. And that's what you try and explore. So just open this up for us. What's the big picture story here?

LEAH DOWNEY: Yeah, definitely. So you're right in that I start from first principles in the book. So what do central banks do? Well, they do lots of things, but one of the main things that they do is engage in monetary policy. And for me, in the book, I define monetary policy as the regulation of money creation. So central banks, of course, create money themselves, but they also regulate private money creation that we see happening in private financial industries.

So when you just think of it that way, it's like, that's a massive state power. When do we create money? On what basis do we create money? How do we create money? Who does it go to? And that has huge implications for how we create and recreate our social world, our political world, our physical world. And that's just politics.

So the fact that those two things are thought to be separable is just kind of just bizarre from a observational perspective. And then essentially what the book does is it does a deep dive into the reasons for and against separating those things.

And essentially, I say the reasons for separating them in central bank independence are not quite as compelling as we might have thought that they were. And the reasons against it are actually really quite important. So we have things backwards a little.

MARK BLYTH: So you're a central bank revisionist.

LEAH DOWNEY: Yeah, you could say that.

MARK BLYTH: You could say that. So let's take this one step at a time then.

LEAH DOWNEY: Yeah.

MARK BLYTH: What is the difference in your mind between fiscal and monetary policy? And why is that important?

LEAH DOWNEY: Very good question. I guess the mundane answer is that fiscal policy, as currently constructed, is about taxes spent and usually happens in the legislature. Monetary policy is more macro in a sense. It's less about distribution explicitly, although, of course, it has massive distributional consequences, and more about, how do we steer the economy as a whole? How do we speed it up, slow it down, push it in different directions?

MARK BLYTH: But you speed things up by giving people a tax cut.

LEAH DOWNEY: Yeah. No, I think that they're very-- I think they're fundamentally, inextricably linked. I think that the division is pretty artificial.

MARK BLYTH: So then why does the division exist, and who benefits from the division?

LEAH DOWNEY: Well, there we go. So the division exists, I think, at least at an institutional level-- if you go back in the US, for instance, to the founding of the Fed, Nineteen Thirteen, the point there was you were creating an institution in reaction to a crisis. So there had been quite a few financial crises leading up to that period that the private financial world was having to deal with itself. And that just was becoming infeasible. Or they didn't want to do it. They wanted help from the government.

The government wanted more stability in finance. There was also a desire from the financial world to have a central bank, because what they noticed was that central banks existed in Europe. And not only did that prevent things like bank runs, it also enabled the Bank to make a lot more money because they didn't have to worry about bank runs and things. The state would take care of it. So they get to mobilize finance in a more profitable way.

So the bank was essentially created explicitly to sustain the stability and effectiveness of the private financial industry. And at the time, it was really much more of a public-private partnership than it is today. It was formally constructed as a banker's bank. So private banks then and now own the Federal Reserve system in a meaningful sense.

But as history progresses, it becomes more an engine of public policy, so how we're going to actually engage in buying and selling assets, in adjusting interest rates and regulation from a public policy perspective. But the aim kind of never changes. So we now have the institution in the United States that is in charge of the regulation of money creation from the perspective of the government, public policy, doing that in order to sustain the stability of the private financial system.

And if you think about that from first principles, it's a bit strange. Historically, it makes sense. And I go into that in the book in terms of why that happened. But just from first principles, from a Democratic perspective, it's a bit weird.

MARK BLYTH: But spell that out, because people might not really think that one through, why is that weird? What are these first principles?

LEAH DOWNEY: Oh, that's weird, because one might think that in a democratic society, if we think of democracy as a form of government in which citizens collectively steer policy, so they're actually determining the rules that they live by, that it would be strange that you'd have an institution within the government that is ostensibly democratic, that is pretty much just securing policy in the interest of a particular sector that is at times explicitly diametrically opposed to the legislature that's meant to be instituting policy from a more traditionally democratic perspective.

MARK BLYTH: So if I put my central bank hat on-- I've got one under here. So if I put on my central bank hat, I go, well, I can understand those democratic concerns. But ultimately, we have transparency in our deliberations. And ultimately, all the stuff the legislature wants, you can't have unless you have monetary stability. So therefore, you need to let us do our job, and then you can do your job. That's what's wrong with the argument.

LEAH DOWNEY: Great. So two things are wrong with that argument in my view. The first is, I just agree. And in the book, the gambit of the book is that the Fed is actually both democratically legitimate and accountable and yet still a problem for democracy. So how does that work?

So because most people critiquing contemporary central banks say it should be more accountable, or it's actually not legitimate. And I disagree with that. I think it is set up like most of the rest of the administrative state. It's delegated power from the legislature. The legislature decided that itself. And it's held accountable for its past actions.

The problem is that leaves no space for the central Bank to guide policy going forward. So my favorite quote about this is actually from a British case where an MP says to the governor of the Bank of England who's testifying in front of parliament-- I'm paraphrasing, but essentially like, what good is of accountability where I just ask you a question and you give me a very erudite explanation? What power does that give me as a democratic official? So that's the gap that I think we have.

Then to the second part of your question, which is, yeah, OK, but maybe we give up on that because price stability is really important. Well, I just don't buy the argument that you can't have some degree of price stability and, quote unquote, "good monetary policy" in a world in which the central bank is like most other administrative agencies.

Why is it special? The argument for it being special, I don't buy. And I think it just gives it more a degree of dominance, actually, and separation. Ultimately, that causes the big problem for democracy, which is that it's not that the legislature needs to be making monetary policy every day, but it needs to maintain the sense that it has power over that. It could do things differently. So that starts to erode when you've got the central bank doing its own thing for an extended period of time, in whatever way and towards whatever ends it wants.

MARK BLYTH: So taking your revisionism seriously here, this leads us to a place where my central-- my other central bank--

LEAH DOWNEY: You have two?

MARK BLYTH: I have two, an even stricter central bank-- says, yeah, but you've got a rather naive view of politics, haven't you? Because ultimately, we know that a bunch of money-grubbing careerists who will throw their grandma under a bus for an extra $5, they can't be trusted. They're time-inconsistent if you want to be fancy about it, and they can't make credible commitments. This is the Ulysses-- not Ulysses problem, Odysseus problem.

LEAH DOWNEY: Either way.

MARK BLYTH: Well, it's true. I always think-- no, but the weird thing is, when you have Ulysses in your head, I immediately jump to James Joyce.

LEAH DOWNEY: Yeah.

MARK BLYTH: And the James Joyce central bank story suddenly gets really weird. So let's not do James Joyce.

LEAH DOWNEY: We'll do Odysseus.

MARK BLYTH: Yes, exactly, Ulysses and The Sirens. So isn't that the usual thing they can't be trusted, et cetera?

LEAH DOWNEY: Yes, this is the classic story. So Ulysses, Odysseus, whoever, wanted to listen to the sirens on the boat. So, in order to avoid the temptation of the sirens' sound and crashing the boat, he essentially had his crew tied to the mast of the boat, and the crew sailed the ship. And he got to hear whatever the song. So the analogy goes that the legislature, to avoid the temptation of bad policy, should tie itself to the mast of central bank independence.

Now, we could spend an entire podcast just going through the problems with that analogy. In my view, there are many. It's not actually a useful analogy, but just to stick to the original question of, aren't politicians just terrible and very simplistic people, and why would we ever give them power, especially over money?

Well, I just think that model is way too simple. So think of it-- let's start here. There are obviously policies, tax policies, military policies, environmental policies, immigration policies, that would seem very attractive in the short-term right before an election that would have bad long-term consequences. And yet, we still seem to think and even demand that those policies are under the power of elected officials. So how is that that different to monetary policy in that instance?

So the second thing I would say is that I think it's pretty unfair to elected officials and voters to suggest that they're really that simple, that they don't actually consider long-term consequences. So, just all the things I just mentioned, consider tax policy-- suppose somebody running for office. They say I'm going to eliminate taxes completely. Everyone vote for me.

MARK BLYTH: That's actually going on just now.

LEAH DOWNEY: Yeah.

MARK BLYTH: This is no longer a thought experiment.

LEAH DOWNEY: No comment. Yeah, exactly. So imagine then, what happens? First of all, some voters don't believe them. Other politicians say, hey dude, that's going to have really bad long-term consequences. So people aren't just idiots, not all of them, at least. So the idea that model is true, I just don't find very compelling.

And the more evidence for that is central bank independence. The legislature could eliminate the Fed and juice the markets tomorrow. But it doesn't because it has some degree of care for long-term consequences. So I just think the model is a bit too--

MARK BLYTH: They're too simplistic.

LEAH DOWNEY: --simple. Yeah, exactly. It's just not a good reflection of reality.

MARK BLYTH: So does that solve the problem of trust? We are in a moment whereby, we're now betting the house on a theory of tariffs, which is shared by precisely three people.

LEAH DOWNEY: Can you call what they share a theory?

MARK BLYTH: I think you can. I actually take it more seriously than most in the sense that if you think that with the demise of TTIP and TPP, basically, and then the idea behind Trump's tariffs, et cetera, as infant industry protection-- the free trade consensus died in Twenty Fifteen.

LEAH DOWNEY: Rightfully so, that would be.

MARK BLYTH: And that was 10 years ago. So well, let's take this as an analogy for this then. Are you part of a movement that 10 years from now want to see the end of central bank independence?

LEAH DOWNEY: Yes and no. Yes--

MARK BLYTH: Don't have it both ways. Yes or no?

LEAH DOWNEY: Well, then I guess in a simple sense, yes. So let me give you the story on this. So I think this is important to say. One of the core observations in the book, which seems pretty obvious but I think has pretty consequential consequences, if you will, is that any monetary policy that is constructed as if democracy matters will have to be political. Just foundationally, democracy is a political form of governance. So if you want to exert democratic power over monetary policy, monetary policy has to be in the political domain.

But of course, for something to be political doesn't mean, A) that it has a particular politics. So for it to be political doesn't mean that we need to be using monetary policy to achieve particular partisan ends. And second, just because democratic monetary policy is political doesn't mean all political monetary policy is democratic.

So if we have the president running monetary policy on the basis of a whim, that is not what I'm arguing for here. So that would be a form of no more central bank independence. But it's not the form I would want to see. And there are very good reasons for that, even just the very obvious constitutional reasons that makes the president look a lot like a king.

There's a reason the president doesn't have powers of the purse. And monetary policy is a form of power of the purse. So that's pretty clear. But I would want to see it-- if the legislature were to institute what I suggest that they should in the book, that would be the end of central bank independence as we know it today for sure.

MARK BLYTH: So before we get to your final concrete suggestions, let's just work it through by stages again. Well, why not just go with more accountability? Because they used to be-- there was nothing. And then basically you started to get the speeches. They were all redacted. And then they did less reduction. And then they started to go for forward guidance, which was basically, I'm telling you what I'm going to do.

LEAH DOWNEY: Which is, of course, time-inconsistent. It can be.

MARK BLYTH: Yeah that's true, a fair point, actually.

LEAH DOWNEY: Yeah.

MARK BLYTH: So why not just go with more transparency in the sense more accountability or different accountability mechanisms? Because it seems to me that we still-- even if politicians are more sophisticated, et cetera, we can have, let's say, how can I put this, the yahoo quotient, this sort of like, and you didn't see that one coming, but there you go. And surely, it's better to have some kind of independence in what is an absolutely crucial function for everyone, money creation, rather than, oh, now I will just run the printing presses, right?

LEAH DOWNEY: Yeah, yeah, yeah. I want to say two things there, one about the yayhoos, yahoos, whatever you want to call them, and the other about accountability. So the first is that it's important to really reckon with the fact that democracy is risky. Properly construed, democracy is risky, particularly for those people who benefit from the status quo.

Because you are opening yourself up. For it to be democratic, you genuinely have to open yourself up to being ruled by people you disagree with. So that's an uncomfortable feeling that we all have to get used to if we actually want a proper democracy. But secondly, I think the yahoo issue is a little bit worse than the US currently because of this sort of delegation.

MARK BLYTH: So that's the problem?

LEAH DOWNEY: Partly, yeah.

MARK BLYTH: So walk me through that one.

LEAH DOWNEY: So when you delegate meaningful power away from the legislature, power like that can actually achieve stuff for people, you incentivize a certain performative style of politics-- let's build a wall and make Mexico pay for it. Like, let's have clean air and water for everyone. Like, No Child Left Behind.

When you're not actually responsible for delivering that and you delegate that power to an administrative agency and say, get that done, then you create this kind of performativity in the legislature. And it's a vicious cycle, because once the performativity happens, everyone's like, why would we give those crazy people any more power?

MARK BLYTH: Because they're crazy.

LEAH DOWNEY: Because they're crazy. So more power goes to the administrative state, more performativity, more power-- so I actually think there's a cycle here that is making the problem worse.

MARK BLYTH: There's another version of that, though, is-- if the American one is the performative one, what you get with the British one where you currently reside is-- in a sense, it's classically the British version of this, the American one to be like loud and performative and angry.

And the British one is basically a world in which there's nothing to do because the Bank of England have got this, and the fiscal rules have got the fiscal side right. So literally, you show up in parliament, and you just wait for results. And that's why you end up doing legislation about nonsense, because there's nothing for you to do. So that is hollowing out democracy.

LEAH DOWNEY: Exactly.

MARK BLYTH: So I'm buying more of this. Now, if that's the case that basically politicians, even it's not that they can be trusted, you should put more power in their hands because that's the essence of democracy. And if you keep taking the power away and giving it to technocrats, then you're undermining democracy, which leads to all sorts of complications, probably worse than the thing you would solve with the delegation. This is where we are. What is your ideal form of independent central bank look like?

LEAH DOWNEY: Yeah so this is where we come to accountability that you brought up before, where a lot of people want more accountability and more transparency, which makes sense because they go together. So the classic theory of accountability, you use transparency to figure out what people did in the past. You then apply the rules that existed at the time and potentially punish them if they violated the rules.

So this is what we see with legislatures all the time, because rather than the courts, usually, it's the legislature that holds the central bank to account. You come in front of the legislature. What did you do? Why did you do it? OK, fine. It was within the mandate or not.

What they don't have and what my suggestion is, is a way for the legislature to regularly know and show its power over the central bank, so to engage in not this backward-looking accountability mechanism, but a forward-looking way of steering policy. So this is what I call iterative governance. So it's essentially active management of the legislature-- or sorry, by the legislature of the central bank.

MARK BLYTH: So does this mean giving them targets? Does this mean saying we want credit policy that looks like this?

LEAH DOWNEY: So it could be lots of different things in theory. The ones that I suggest in the book, in the context of US monetary policy, are regularly rechartering the Federal Reserve so that would-- which historically, by the way, was already the case, and which would enable the legislature to steer things going forward at an institutional level.

So should reserve banks that are all over the country still actually be owned and pay dividends to private industry? Or should they be regional investment banks, or this kind of thing? Should we be paying interest on reserves, or should-- all of these sorts of questions, institutional questions.

Then I also suggest an annual form of credit guidance. So what this would be is the legislature voting on, a, the way I cash it out in the book is voting on what I call a preferred asset taxonomy. So you could have a way of scoring assets that are like, we want more in this region. We want more in this sector. We want fewer here, blah, blah, blah.

But it could be as extensive or limited as they wanted. So essentially, they could vote every year and say, we want no credit policy. But that's what we're saying explicitly to you. Or they could say, we want to see more credit allocation in the West of the country, and in green energy, and less in health care. I don't know, whatever.

But they would be taking a stand in an explicit way, which would bring home to both citizens and the central bank and the elected officials themselves, that they actually do have levers of power over how this works. This is not natural.

MARK BLYTH: And they would be held responsible for the outcomes.

LEAH DOWNEY: Exactly.

MARK BLYTH: But you live in the UK, so maybe it looks different there because they're all constrained with their fiscal rules and their targets and everything.

LEAH DOWNEY: Yeah.

MARK BLYTH: But here, I'm just thinking about the past eight years. So if you have annual credit guidance, let's just shorthand, call it that, or at least a three-year window or whatever it is, you do this sort of stuff. So we're going to set up the IRA. We're going to do all this stuff. And then the new guy comes in and then basically dismantles the whole thing.

LEAH DOWNEY: Yep.

MARK BLYTH: You're going to get tremendous volatility in this.

LEAH DOWNEY: Mm-hmm.

MARK BLYTH: And if this was just a normal country, that would be fine. But it does print the global reserve asset.

LEAH DOWNEY: Yep.

MARK BLYTH: And all of these things would be hugely disruptive. And the people who are affected by it are truly global. Do you really want to bring that level of volatility into this thing?

LEAH DOWNEY: Yeah. Well, I think it's important to distinguish between what we think about as volatility and what we think about as variation. So volatility is generally thought of as unpredictable and undesirable. So you don't see it coming. And all of a sudden, boom.

MARK BLYTH: Or just you could know it's coming in the sense that the other guy is going to win the election and what you're going to do is dismantle everything you did for the past three years. So anyone who did investment decisions based upon your guidance is now carrying the wrong end of the bag.

LEAH DOWNEY: But essentially, what I argue is that you're always going to get some degree of political volatility or variation in monetary policy, because it-- take the crisis. When things go down big time, then the government steps in, or somebody is elected who decides, I'm going to get involved in this because I can. And they do.

So it's always kind of lurking in the background. The question is, does it happen unpredictably and erratically and really dangerously? Or do you allow for a mechanism that enables political input into the system at a regular basis that is actually predictable so the markets see coming, kind of an election where OK, this guy's going to get elected, maybe he's going to do some crazy stuff, but we see that kind of coming?

MARK BLYTH: Yes.

LEAH DOWNEY: So it's undoubtable that there would be more variation in the system, because it would be more politically inflected. This is back to the observation that for it to be democratic, it's got to be political in a meaningful sense. That means there probably will be more volatility.

But you try and do it in a way that is predictable and desirable and allows for people to see it coming to interpret it and also to guide it. So if there's somebody who's coming about to run for office and they're saying they're going to do this and it's going to explode the entire global economy, well, recent evidence says maybe we vote for them anyway. But maybe you don't. Maybe someone argues against it, that kind of stuff.

MARK BLYTH: But with the Fed in particular, it's the global central bank. Nobody wants to talk about this.

LEAH DOWNEY: Oh, yeah, yeah, yeah.

MARK BLYTH: So in a world of relatively closed economies that make the same stuff and occasionally swap things with each other where current incumbents would like to get back to in a sense, you can have highly accountable, in your sense, central banking.

LEAH DOWNEY: Yeah.

MARK BLYTH: But let me give you an example, and I'll call this the Aditi question. And you will understand why.

LEAH DOWNEY: Yeah.

MARK BLYTH: So this is after Aditi Sahasrabuddhe, one of our friends and colleagues who writes on swaps. So what the Fed does is it has these swap networks. And the swap networks make total sense from the point of view of a global governance problem.

So basically, for those who don't follow the finer points of this stuff, basically more dollars are created outside the United States than inside the United States every year in the form of dollar loans done by people who can't get access to the Fed.

So if those loans end up on the balance sheets of financial firms that don't have dollar access and those loans go bad, they're really, really in trouble. And that reverberates back to the US and to everyone else. So to cut those transmission mechanisms, the Fed agrees to swap large amounts of currency, so yens for dollars, pounds for dollars, et cetera. So those central banks actually have access to dollars and can effectively bail out their banks.

Now, after Two Thousand and Eight, a lot of people went, hang on a minute. So we put taxpayers' money in the Royal Bank of Scotland group that was run by Fred the Shred. We bailed out the Germans who were running operational leverage of SachsenLB on an average Tuesday. Why are we doing this? This is nonsense.

So a really democratic monetary policy would actually see these as dreadful risks and externalities and would probably get rid of them, which would make the entire system more democratic, but a lot more risky. Is that worth it?

LEAH DOWNEY: Yep. From a democratic perspective, yes. It has to be, as you say, absolutely. So Monetary Policy as if Democracy Matters, as the book title suggests, would have to be more stringently domestically empowered, for sure. But then the question is like, well, then maybe I'm just not democratic because that's just insane.

I actually don't think it is that insane. So I think drawing more clear domestic lines around the things like swap lines, the Euro-dollar market, regulation of the Euro-dollar market, et cetera, would actually be, in my view, a good thing.

Because, one, from a democratic perspective, because you're getting more democratic input over that, but, two, also because, do we really think that this system right now is a good one? It's the Fed that's deciding who-- the thing you left out of the story is that the Fed decides who gets those swap lines. Not everybody gets them.

MARK BLYTH: That's right.

LEAH DOWNEY: Some countries are like, please, can we have dollars? We desperately need dollars. And Jay Powell-- not Jay Powell, but would be in the future would say, actually no, today I don't really like your country. So I'm not going to do that, so both wildly undemocratic but also totally arbitrary and bizarre-- not totally arbitrary, because it's done, because it's on the basis of going back to the founding of the Fed, securing the stability and effectiveness of the international financial system.

MARK BLYTH: Yes, So if Deutsche Bank blows up, that's probably your problem as much as it's Germany's problem.

LEAH DOWNEY: Yeah. But is the Fed saving Deutsche Bank really the best move in the long term and especially from a democratic perspective for the global population? I'm not so sure. So I don't know. My view is that it's a tricky question in the sense of, what's the alternative? Is the alternative international collapse because nobody does anything as a result? That's bad.

Is the alternative that the US exerts more domestic control over monetary policy, including things like swap lines and the Euro-dollar? And as a result, there's an international reaction to that, which is like, oh, I guess we can't depend on the international Euro-dollar market anymore and all this massive financial speculation that goes on the back of it.

We need to something else out that's either more domestically democratic in their own country, or there's a new political discussion about international financial governance. But right now, it's like all pretty shady. And I'm not a big fan.

MARK BLYTH: And I'm sympathetic to that in the sense that the turn to technocracy works so long as you have what I call output legitimacy. That basically you say you're the best sausage maker. The sausages are delicious. And then when it all goes wrong and the sausages taste bad, people say, who put you in charge in the first place? And then the whole thing becomes politicized in a different way.

But the counter to that as the adults in the room claim, that in a time of increasing polarization, media fragmentation, and people believing frankly whatever they want, that the world does work in certain ways. People do have certain degrees of expertise. And if you do things like just basically have a tariff war for the sake of it, it probably will be damaging, and it probably will not result in the mass re-industrialization of 30 million jobs.

Let's be honest. It's not going to work. So if that's the case, don't you want the adults in the room. in the sense that it's the least bad option? Because I want to be a Democrat. I want to be a Democrat with you, but I don't want to be a Democrat with these guys.

LEAH DOWNEY: No, no, no. But the argument that I'm making is not that we don't want the adults in the room or that we don't want to use the best sausage maker to make our sausages. The whole claim is that what we want is to employ expertise in a democracy, but not be ruled by experts.

So how do you create a system in which the legislature still maintains a certain degree of effective power over the expert? So I want you to think about more investment in North Carolina and less in California, but also recognizes that they don't have the expertise.

So they're employing that expertise and showing them here are some options, here how we can do that, here's how we can do that. So you still have the adults in the room. It's just that the sausage maker isn't in charge. They're responding to a different degree of--

MARK BLYTH: You're telling them whether you're making Italian sausage or not.

LEAH DOWNEY: Yes. Yes. Not only is that, I think, more democratic, but it also interestingly would allow for a different relationship between the legislature and the expert that could actually enable the discretion of expertise. So if the expert is not obsessed with adhering to a mandate, because that's the legal, technical way in which they're legitimate, but instead is engaged in an active management relationship, then you get a lot more creativity, and you could get better kind of policy outcomes.

So I think about this with-- think of any management relationship, like a manager and their employee. Instead of saying, I'm writing out four things for you to do, it's like, we'll check in. We'll see how it's going. You tell me what's working, what's not working, that kind of thing.

So it's not that I want to rid the world of technocrats and experts. I love the administrative state. I want to build it in a way that's actually sustainable and empowers democracies over time rather than undermines them.

MARK BLYTH: And doesn't become a target. It doesn't become a target of the democracy.

LEAH DOWNEY: Yeah, exactly, exactly.

MARK BLYTH: And I'm particularly struck by your idea that ultimately, by not letting them hide behind fiscal rules, not letting them hide behind all the central banks got that, you re-professionalize politics.

LEAH DOWNEY: Exactly.

MARK BLYTH: You say you have to be serious people.

LEAH DOWNEY: Exactly. It's like, this is your power. And therefore, you have to deal with it. So I think both-- you're re-professionalizing them. You have to be serious people. And you're going to attract-- politics is not a very attractive business for a lot of very intelligent, curious, ambitious kids these days. My students-- I don't know about yours-- are not very interested in politics.

And that is, I think, part of virtue of the fact that we just have completely sucked it dry of actually being able to do something. It's no wonder people are voting for parties all over the world that are saying, let's blow it up, drain the swamp, take back control, because it's true in a sense that politicians have delegated away so much power that it doesn't really matter who's in that seat. And that is not a good state for democracy if it doesn't matter who's in that seat.

MARK BLYTH: Exactly. Is there anything else that we haven't covered?

LEAH DOWNEY: Oh, boy. I think it's just worth maybe emphasizing at the end, too, that this whole point about democracy and it being risky and embracing that. It's a tricky thing to argue, especially at this moment in time. But I think one analogy that I use at the end of the book that I found useful was suffrage.

So at the time when women were arguing for the vote, one of the major arguments against was, that's just going to produce bad policy. We can't let women vote. That'll produce bad policy. But it was obviously the democratic thing to do to extend the vote to women. And in the end, obviously, that wasn't the case, that women voting produced bad policy.

But it also was just, you have to take the conclusions of the argument if you're really going to commit to it. So if you want to sit there and tell me that actually I care more about the stability of the international financial system than I do about democracy, then, fine, that's your prerogative. But if you're going to say that you are committed to democracy, then this is the conclusion. And we have to have that conversation in the country. And I don't think we have yet.

MARK BLYTH: You might have wanted to call the book The Democratic Risk.

LEAH DOWNEY: I like that.

MARK BLYTH: Because that's ultimately the essence of what you've got to take the democratic risk.

LEAH DOWNEY: Yeah, yeah.

MARK BLYTH: Maybe that can be the title for your next book.

LEAH DOWNEY: There you go, next one, yeah. I'm on it.

MARK BLYTH: Well, Leah Downey, thank you very much for coming in and being on the podcast.

LEAH DOWNEY: Thanks for having me. It's been a lot of fun.

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MARK BLYTH: This episode of the Rhodes Center Podcast was produced by Dan Richards and Sabrina Clumeck with video production by Azurae Cruz. If you like the show, leave us a rating and review on Apple, Spotify, or wherever you listen to podcasts. And while you're there, be sure to subscribe, too. We'll be back soon with another episode of the Rhodes Center Podcast. Thanks for listening.

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