New Books in Economics

Leah Downey, "Our Money: Monetary Policy as If Democracy Matters" (Princeton UP, 2024)

Dec 25, 2024

Leah Downey, a research fellow at Cambridge University, explores the critical intersection of monetary policy and democratic theory. She argues for a more democratic approach to money creation, critiquing the traditional independence of central banks. Downey discusses the historical evolution of the Federal Reserve and advocates for increased citizen involvement in monetary policy. By introducing 'iterative governance,' she emphasizes the importance of legislative oversight to ensure that economic policies reflect the will of the people, fostering true democratic accountability.

40:05

Episode guests

Leah Downey

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Quick takeaways

Leah Downey argues for redefining monetary policy within a democratic framework to enhance accountability and public participation in economic governance.

The podcast critiques central bank independence, advocating instead for legislative control over monetary policy to ensure alignment with democratic values.

Deep dives

The Interrelationship of Monetary Policy and Democracy

The discussion emphasizes the essential link between monetary policy and democratic theory. Monetary policy is often confined to economics and public policy, leaving a lack of political discourse about its implications on democracy. By analyzing how monetary powers should be viewed through a democratic lens, the speaker argues that the power to create and regulate money is fundamental for a democratic state. This intersection of disciplines helps to illuminate how democratic principles can inform and reshape economic policy for greater accountability.

Intro

2min

Democracy and Monetary Policy

8min

The Evolution of the Federal Reserve: A Public-Private Partnership

5min

Rethinking Central Bank Independence

20min

Exploring Democracy and Time in Economic Policy

2min

How the creation of money and monetary policy can be more democratic.

The power to create money is foundational to the state. In the United States, that power has been largely delegated to private banks governed by an independent central bank. Putting monetary policy in the hands of a set of insulated, nonelected experts has fueled the popular rejection of expertise as well as a widespread dissatisfaction with democratically elected officials.

In Our Money: Monetary Policy as If Democracy Matters (Princeton UP, 2024), Leah Downey makes a principled case against central bank independence (CBI) by both challenging the economic theory behind it and developing a democratic rationale for sustaining the power of the legislature to determine who can create money and on what terms. How states govern money creation has an impact on the capacity of the people and their elected officials to steer policy over time. In a healthy democracy, Downey argues, the balance of power over money creation matters.

Downey applies and develops democratic theory through an exploration of monetary policy. In so doing, she develops a novel theory of independent agencies in the context of democratic government, arguing that states can employ expertise without being ruled by experts. Downey argues that it is through iterative governance, the legislature knowing and regularly showing its power over policy, that the people can retain their democratic power to guide policy in the modern state. As for contemporary macroeconomic arguments in defense of central bank independence, Downey suggests that the purported economic benefits do not outweigh the democratic costs.

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