President Trump’s firing of Federal Reserve Governor Lisa Cook has caused anguished squawking about the loss of Fed independence. Yet experience since 1998 has shown that Bank of England independence has produced worse outcomes than before, and the world’s independent central banks’ overall performance has been thoroughly third-rate. Central bank independence without firm policy guidelines is an invitation to crazed professors like Ben Bernanke to invent new monetary policies that bear no relation to reality. Political control is essential, allowing voters at least some say in central bank decisions; a Gold Standard or equivalent discipline would work even better.

The Bernanke era illustrates perfectly why independent central banks are a bad idea. Nominated by the intellectually limited George W. Bush on a populist proposal of “dropping money from helicopters” which while disruptive might actually benefit the populace on which it was dropped, in office he pursued a policy of dropping money solely on Wall Street through his “quantitative easing.” That policy has damaged the overall U.S. and world economies hugely over the 15 years since it was implemented. It has particularly damaged small business by giving lazy behemoth banks an easy way to make money through Fed reserve holdings without the effort of corporate lending.

Bernanke’s irrational fear of deflation, which led him to regard the exceptional conditions of 1930-33 as liable to recur at any moment, also led him to set the inflation target at 2% rather than zero. This was in direct contravention to the Humphrey-Hawkins Act of 1978, which required the Fed, as well as its vague employment objectives, to pursue “reasonable price stability.” By definition, an inflation of 2% per annum, which doubles prices in 35 years, is not consistent with price stability and is thus legally invalid as a Fed objective. Even though temporary price rises might be needed to combat unemployment, unemployment has been below 5% for most of the last decade, with a short COVID-driven blip upward in 2020. Hence the Fed’s 2% inflation target is utterly inappropriate, a product of Bernanke’s irrational Keynesian or Marxist delusions.

The other Bernanke-era policy that has caused long-term damage to the U.S. and world economy is that of holding interest rates consistently below the rate of inflation for more than a decade, in 2009-21. By encouraging capital investment with a zero or negative return in real terms, that policy has caused a massive ziggurat of malinvestment, most especially in tech, “clean energy” and real estate, wasting incredible amounts of resources, lowering productivity growth close to zero and inevitably bringing a deep depression when it has to be liquidated. Political control would have prevented this folly; while the Obama administration was as economically deluded as Bernanke, Congress from 2011-17 had solid Republican majorities in both Houses which, had they been given a say on this policy and its implications, would certainly have vetoed it.

In Britain, the recent record of the Bank of England, made independent in 1998, is even worse. Before Bank independence, the Bank occasionally had truly superior Governors, notably Montagu Norman (Governor, 1920-44), who in 1931 maneuvered Britain’s departure from the Gold Standard without letting a Labour government spend the short-term fiscal proceeds, and Rowley Baring, 3rd Earl of Cromer (1961-66) who played a large role in inventing the Eurobond market and fought gallantly against the rising tide of Harold Wilson’s socialism.

Norman, unlike recent U.S. central bankers, also understood the sanctity of foreign exchange reserves, transferring one tranche of Czech reserves to Hitler’s government (the new de facto Czech government) in March 1939 and attempting to transfer another tranche two months after war between Britain and Germany broke out (he was blocked by the government, less punctilious about the international financial system). President Biden’s seizure of $300 billion of Russia’s foreign exchange reserves in 2022 destroyed that system’s credibility, is the principal cause of gold’s rise to $3,600 today from $1,907 at the end of February 2022 (gold being the only other plausible reserve asset) and will bring the United States and the international financial system infinite trouble in the future.

However, under Mark Carney and Andrew Bailey, the Bank of England has become a tool of the Left. Its monetary policy under them mimicked the worst features of Bernankeism, keeping interest rates generally below those in the United States, even though inflation was significantly higher. Politically, Carney used the Bank’s supposedly neutral prestige to intervene against the liberating 2016 Brexit vote. More damagingly, in 2022 Bailey staged what can only be described as a monetary coup against Liz Truss’s government, using the troubles of poorly regulated final-salary corporate pension funds, which had insanely invested in index-linked gilts at negative interest rates, to pretend that Truss’ policies were endangering the markets.

Had Truss picked an experienced Chancellor of the Exchequer such as John Redwood, who was one of her most prominent supporters, Bailey’s scam would have been called out and no damage would have been done. However, Truss had unfortunately succumbed to wokery and picked a DEI Chancellor of the Exchequer Kwasi Kwarteng who was not up to the job. Still the real blame should not rest on the hapless Kwarteng, nor on Truss, but on Bailey, who played a role utterly unbefitting a central banker.

Extraordinary as it may seem, Bernanke’s monetary policies are not the worst that can be imagined. Modern Monetary Theory basically states that the Treasury need not bother funding the budget deficit with long-term debt; the Fed can simply fund it by printing money, increasing the deposits held with it by the banking system ad infinitum. This is essentially the policy attempted by Reichsbank President Rudolf Havenstein in Weimar Germany in 1919-23; it resulted in hyperinflation, the destruction of German middle-class savings and eventually the rise of Nazism. No doubt the proponents of MMT are confident that the left would form the inevitable dictatorship once the currency had collapsed and the economy was reduced to barter; I would not be so sure.

Given the damage that can be done by uncontrolled economics professors, now unconstrained by classical concepts of monetary policy, some level of control by the Executive or Congress is clearly necessary. Trump’s firing of Lisa Cook shows the way ahead; her brand of economics consisted mostly of affirmative action – as is shown by her extraordinary attempt to remain as a Fed Governor after her two undeniable cases of mortgage fraud, surely a crime that is incompatible with a post overseeing financial regulation. The President should be able to fire Fed Governors without it being “for cause” – there is no reason why they should enjoy greater protection from a new administration that the rest of the Federal bureaucracy. That way, a new administration will be able to get the monetary policy it wants – if that policy proves inflationary, the midterm elections and the next Presidential election will provide a means for the electorate to reverse the misguided policy direction.

In the days of the Gold Standard, it did not matter much whether the central bank was independent of the Treasury. The role it had to play was minor and mechanical, merely ensuring that its gold holdings were sufficient to maintain the gold parity of the currency – thus being forced to raise rates, without squawking by the Treasury, when gold reserves ran down, as they did in 1894-95, for example under President Grover Cleveland. Trouble only arose in the United States when the Fed was created, with all sorts of highfalutin’ ideas about its role in maintaining prosperity. In practice, the new central bank was over-inflationary, creating the speculative bubble of the late 1920s and the crash that followed; it can thus be said definitively that the U.S. would have been better off without it. A purely private sector, quite small central bank, like the Bank of England before 1914, could not do the damage the Fed did in 1927-31, even though the Bank of England made mistakes on several occasions.

The best solution to the central bank dilemma is thus to reduce its function to a purely mechanical one, through a Gold Standard or some similar mechanism. The next best solution is to subject it fully to political control, so that its errors of policy can be corrected where necessary through the electoral mechanism. In either case, Congress and the courts should make it clear that price stability means zero inflation as a long-run average, so if the central bank has an inflation target, it must be zero. Just enforcing that target properly should prevent future outbreaks of Bernankeism or MMT.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)